TransCanada considering a Plan B
The angst of Chicken Littles over cancellation of the Keystone XL pipeline last week really was over the top. But never fear, the market is already organizing to provide alternatives.
On Jan. 18, while Prime Minister Stephen Harper was profoundly disappointed, Alberta Premier Alison Redford complained the United States will continue to buy oil from countries (read, Middle East totalitarian regimes) that “do not share the same values as Canadians and Americans,” and oil industry mouthpieces like Sun Media’s Ezra Levant and Ethicaloil.org’s Kathryn Marshall brayed to the moon, industry itself was remarkably composed.
TransCanada CEO Russ Girling said all the right things, including that the Calgary-based pipeline giant is still fully committed to the project. And a representative from the Canadian Association of Petroleum Producers told me his organization was trying to downplay the significance of Obama’s decision.
Why? For two reasons.
One, Obama left the door wide open for TransCanada to re-apply – after the American political silly season when the project won’t be a political football, which is why the President was maneuvered by the Republicans to cancel it in the first place. He told Harper on the phone, and repeated in his official statement, that the “announcement is not a judgment on the merits of the pipeline” and the American government plans to “look for new ways to partner with the oil and gas industry to increase our energy security – including the potential development of an oil pipeline from Cushing, Oklahoma to the Gulf of Mexico.”
Does that sound like a president who “chose” Venezuela and its wild-eyed Marxist leader, Hugo Chavez, over Canada (as Levant put it)?
Two, with Keystone XL hobbled, other pipeline competitors are dusting off their proposals and thinking about getting back in the game. Bad news for TransCanada, but good news for Alberta oil sands producers, who are expected to double their output to three million barrels a day by 2020.
Greg Stringham, CAPP’s VP of oil sands and markets, says there is enough pipeline capacity until 2015 to handle the Alberta bitumen flowing to U.S. markets. After that, capacity must be increased. Given the time it takes to build pipelines and have them approved by regulators, companies are already working hard on alternatives to Keystone XL.
The two main pipelines carrying Alberta crude south are the Enbridge-owned Alberta Clipper (450,000 barrels per day, which can be increased to 800,000 bpd) that extends from Alberta to the southern tip of Lake Superior, then heads south to the Chicago area; and TransCanada’s Keystone (435,000 barrels per day, increased to 590,000 barrels) which enters the U.S. at the Manitoba border and travels straight south to the northern Nebraska border until it veers east to Chicago.
The problem, according to Stringham, is the lack of pipeline capacity from the Upper Midwest to Cushing and then on down to the Gulf Coast, where Texas refineries are clamouring for oil sands bitumen. Given the spiderweb of pipelines connecting markets in that part of the world, there are appear to be plenty of options available.
“Many of Keystone’s competitors are now looking at it and saying, ‘Well, if it does not proceed on the same timeframe, we could propose a number of alternatives to get into that same growing market.’ It’s not like the market will not be met, it’s just a matter of what timing and through what route,” said Stringham.
It appears there are a number of routes under consideration.
Spokesman Terry Cunha says TransCanada is considering building a system within U.S. borders that would avoid the State Dept. approval currently holding up Keystone XL. The original Keystone pipeline would be extended from Steele City, NE to Cushing and Phase III of Keystone XL, from Cushing to Port Arthur, TX, would be built.
TransCanada will be discussing the alternate route with its customers, according to Cunha, who stresses that Keystone XL is still the company’s Plan A.
Industrial Info Research, which tracks industrial construction projects around the world, lists three pipelines ready for construction that will affect the transport of oil sands bitumen.
- The Atoka Grassroot Crude Oil Pipeline, a 165-mile pipeline that will run from Cushing to Rockdale, TX. The $250 million pipeline will carry up to 400,000 bpd out of Cushing. The project is scheduled to kick off in February and be operating by March 2013.
- The Yale Flanagan-to-Cushing Grassroot Pipeline, a $240 million portion of a larger $2 billion pipeline project, will add 85 miles of 30-inch pipe between Cushing and the Kansas/Oklahoma border. This project is being developed by Enbridge and is scheduled to kick off in mid-2013, becoming operational in mid-2014.
- The Sherman Wrangler Grassroot Crude Oil Pipeline, also being developed by Enbridge, will span 281 miles in Texas, from Sherman to Houston. This project, valued at $310 million, can transport up to 800,000 bpd of crude oil. This project is part of the larger Wrangler project. The Sherman portion is scheduled to kick off late this year and become operational in late 2013.
Stringham says there are other projects being discussed by industry, but it’s too early to provide firm details on their routes or capacity.
Two things, however, are clear: Keystone XL is far from dead and the pipeline industry is already mobilizing to provide alternatives just in case. Stringham and other industry experts are confident there will be enough pipeline capacity to handle growing Alberta oil sands production, even without Keystone XL.
While TransCanada and its competitors plan their next move the rest of us – including fact-phobic pundits, attention-seeking politicians, and opportunistic eco-warriors – should relax and dial down the rhetoric. Soon enough there will be one or more pipelines seeking approval to transport Alberta oil sands bitumen to the hungry maws of Texas refineries.
Perhaps next time, after the 2012 presidential election campaign is over, the debate will be a tad more level-headed.
About the Author (Author Profile)
Markham began his journalism career writing columns in the mid-1980s for Western People Magazine, then reported for a small Saskatchewan daily. He has spent most of his career in media and communications, likes to dabble in politics, was actively involved in economic development for many years, thinks that what goes on in the community is just as important as what happens provincially and nationally, and has a soft spot for small business (big business, not so much). Markham is a bit of a contrarian and usually has a unique take on the events of the day.