04/05/2013 05:28 EDT | Updated 04/05/2013 09:09 EDT

Energy East Pipeline: What You Need To Know About TransCanada's Latest Plan


Amid a flood of controversy over two proposed pipelines that would ship crude from Alberta’s oilsands to markets overseas, progress is picking up on plans to construct a third pipeline that would bring oil across the country to the East Coast.

The TransCanada Corp. project, the Energy East Pipeline, would move oil from Alberta and Saskatchewan to ports and refineries in Atlantic Canada.

If it is approved along with Keystone XL (which would pump oilsands crude to refineries in Texas and then abroad) and the Northern Gateway project (which would push oil across British Columbia to a port in Kitimat, B.C. for export), Canadian crude would be pumped underground in three directions: east, west and south.

This would be good news for Canadian oil companies looking for new markets. Demand from the U.S., where the vast majority of Canadians crude is currently shipped, is expected to dwindle in the coming decade as the country looks to become energy self-sufficient.

Meanwhile, global oil demand — especially in Asia’s rapidly developing markets — is expected to skyrocket. In order to benefit from that increase in demand for Canada’s supply, pipeline supporters argue the country needs to build capacity to ship the product to market.

The west-east pipeline proposal is unique in that it would ship oil both for use in Eastern Canada, which could help lower pump prices for Atlantic Canadians, as well as create another channel for Canadian crude to be exported overseas.

Here’s a primer on the latest pipeline to enter the conversation on Canada’s energy future.

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What is the west-east pipeline?

Calgary-based TransCanada Corp., the company behind Keystone, plans to build a pipeline that would ship mostly light oil, but also heavy crude, from oil rich Western provinces across the country the East Coast.

The Energy East Pipeline could have the capacity to transport as many as 850,000 barrels of crude oil per day beginning in 2017.

The plan is to convert about 3,000 kilometres of an existing natural gas pipeline and add an additional 1,400 kilometres of new pipeline.

What's the argument for a west-east pipeline?

Oil from Western Canada is essentially landlocked, making it difficult to move to international markets, which drives down its price by as much as $40 a barrel compared to the world standard.

It is also difficult to ship Western crude across the country to Atlantic Canada, which instead relies on foreign sources of oil, a situation that is less than ideal in a country that has so much of its own oil waiting to be sold.

TransCanada says the pipeline could reduce the need to import foreign oil to process at refineries in Eastern Canada, while Natural Resources Minister Joe Oliver argues that the Energy East Pipeline could deliver Canadian oil to large energy consumers in Asia, in addition to making the country less dependent on foreign oil.

In addition, a lack of pipelines to export oil has left a glut of oilsands crude sitting in a bottleneck in the U.S. Midwest, which has depressed Canadian oil prices compared to the U.S. benchmark, West Texas Intermediate, which in turn trades at a discount to the cost of Brent crude. Those low prices have cost the Canadian and Alberta governments millions in lost royalties.

What is the status of the Energy East Pipeline?

TransCanada has launched a formal process to solicit long-term commitments from companies interested in having their crude shipped east. The process is open until June and will help the company determine the commercial viability of the project. It says it has already determined the project is technically and economically possible. The company plans to seek regulatory approvals later this year if the current phase is successful. If all goes according to plan, the pipeline is expected to ready for shipments by 2017.

What is the pipeline’s route?

The exact route will be determined after a public and regulatory review, but the starting point would be a new tank terminal in Hardisty, Alta. Three other terminals would be built along the line: one in Saskatchewan, another in the Quebec City area and a third near Saint John., N.B. The line would be about 4,400 kilometres long, including the segment already built for TransCanada’s natural gas line. New sections will need to be built in Alberta, Saskatchewan, Eastern Ontario, Quebec and New Brunswick.

Where will the oil go?

Crude from the pipeline would be shipped to energy-hungry markets in Asia and elsewhere, as well as to refineries and eventually consumers in the Atlantic provinces.

The proposed terminals in Quebec City and Saint John would include facilities for marine tanker loading for export. The project would also include delivery to existing Quebec refineries in the Montreal and Quebec City areas, as well as a large Irving Oil refinery in Saint John.

What are the potential environmental issues?

Environmentalists argue the pipeline could put waterways and communities along its route at risk as well as add the potential of a major oil spill on the east coast from export tankers waiting to take the crude abroad.

Because oilsands product emits an estimated five to 15 per cent more carbon than conventional oil, refining more of it in Canada would likely increase the country's total carbon emissions. However, the U.S Defence department recently determined that emissions from transporting and using fuel from oil sands was not significantly different from those made with conventional oil.

What are the potential challenges?

Technical issues include relatively small refineries on Canada's east coast that have only limited capacity to refine tarry bitumen and a short-term potential overcapacity if all three proposed pipelines are completed on schedule between 2015 and 2018.

But the more immediate obstacle is from environmentalists who warn, among other potential risks, that the plans to convert a gas pipeline to oil could pollute Canadian sources of waters. Vocal criticism from environmentalists and First Nations groups have held up the approval process for both Northern Gateway and Keystone.

The project will be subject to public and regulatory reviews.

What are the potential political hurdles?

Politicians appear to be lining up behind the idea of a west to east pipeline. Potentially because 3,000 kilometres of the project is already in the ground, the proposal suggests refining at least some of the oil at home, which could reduce high gas prices in Atlantic Canada.

The project has the support of the federal government as well as the provinces of Alberta and New Brunswick and support in principle from Quebec. Federal Liberals have also expressed support, and even NDP Leader Thomas Mulcair, who is staunchly opposed to Northern Gateway, has voiced support.

Would this pipeline render Keystone and/or Northern Gateway unnecessary?

According to the industry, all three lines are necessary if Canada wants to meet its export potential in the coming decades. The west-east pipeline would complement, rather than replace, the other two pipelines and build capacity to ship oil west east and south, the industry argues.

What are the benefits for Canada?

Drivers in Atlantic Canada currently pay as much as 20 per cent more to fill up than those in the Western provinces. Among other factors driving prices higher, they are paying a premium to import foreign oil, while Canadian oil sits ready for use.

Proponents say the pipeline will create a new domestic market for Western Canadian oil, as well as potentially open a new door for international export.

In addition, the project could contribute to job creation and economic growth, with some estimates saying it has the potential to create thousands of jobs during construction and a few hundred permanent positions.