BUSINESS

Energy East Pipeline Will Mean Higher Natural Gas Costs, Job Losses, Gaz Metro CEO Warns

10/21/2014 03:24 EDT | Updated 12/21/2014 05:59 EST
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MONTREAL - The head of Quebec's largest natural gas distributor says TransCanada Corp.'s $12-billion, cross-country project to convert a natural gas pipeline to oil will hurt consumers, raise prices and reduce employment if implemented as proposed.

Gaz Metro CEO Sophie Brochu said Tuesday that she is not mounting a political campaign against the project but demanded changes before an application is submitted in the coming days to the National Energy Board.

Brochu said 3.6 million natural gas customers in Quebec and Ontario will be affected, including large industrial customers who will be forced to pay higher energy costs in winter, unless the project ensures an adequate supply of natural gas at no higher cost.

She told the Montreal Board of Trade that TransCanada (TSX:TRP) should build a new oil pipeline section between North Bay, in northeastern Ontario, and Ottawa instead of converting the existing line and building a smaller capacity line for natural gas at an estimated cost of more than $1.5 billion.

Calling her solution "logical," she said oil producers and not natural gas customers should pay for the changes that will carry western oil to markets in the east.

"I don't accept that we ask domestic consumers of natural gas to interfinance the exportations of petroleum," she later told reporters.

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Energy East Pipeline Explained

Brochu estimated that the new oil pipeline section would cost producers just 50 cents a barrel, a fraction of the price of crude that is currently hovering around US$83.

Ontario's Union Gas and Enbridge Gas Distribution have also raised similar concerns about the Energy East conversion.

Gaz Metro said the conversion of the 3,300-kilometre Energy East pipeline between Alberta and Quebec would reduce the supply of natural gas for customers during peak winter months and for economic development.

Energy East would be one of the biggest infrastructure projects in Canadian history, crossing six provinces and traversing 4,600 kilometres in total. Roughly two-thirds of it would make use of underused natural gas pipe that's already in the ground, with new pipe being built through Quebec and New Brunswick. The idea is to connect oilsands crude to eastern refineries and to export some of the oil by tanker.

TransCanada says the project will remove the 20 per cent excess natural gas capacity on the eastern network that is destined for export to the U.S. northeast, and that its project will reduce costs of maintaining the pipeline.

Brochu said she doesn't oppose TransCanada's efforts to transport 1.1 million barrels of crude oil per day to refineries in Quebec and New Brunswick but doesn't agree with some of the Calgary-based company's claims that minimize the impact on natural gas consumers.

"While they're not lying, they're not telling the whole truth," she said.

A Deloitte study said the conversion will boost Canada's GDP by $35 billion over 20 years, add $10 billion in taxes, support 10,000 jobs and help eastern refineries.

Brochu spent much of her speech decrying the lack of a Canadian energy strategy or discussions among provinces since the death of Pierre Trudeau's national energy program in 1984.

Montreal Board of Trade president Michel Leblanc said the business community hasn't yet decided if it will oppose TransCanada's pipeline proposal, which it views as not being "optimal."

"I don't believe that by reducing by 50 per cent what's carried in a pipeline in terms of gas is a response to our needs at the moment," LeBlanc said.