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Petroleum News: Clash of Canadian heavyweights

Leading producers do battle over TransCanada plans to switch gas pipeline to oil sands; disagree over outlook for gas supplies

Gary Park
For Petroleum News

In the red corner we have, among others, EnCana, Shell Canada, Nexen and Devon Canada.

And in the blue corner, ConocoPhillips Canada, Canadian Natural Resources and Suncor Energy.

It’s one of those very rare showdowns in the Canadian oil patch.

At stake is the future of almost 500 miles of natural gas pipeline in Canada which has many of the largest oil and gas producers locked in combat and, in the process, feuding over the outlook for Western Canadian gas supplies.

The trigger is TransCanada’s plan to convert a portion of its Canadian mainline from a gas carrier to become a major link in the proposed Keystone oil sands pipeline.

In final submissions to the National Energy Board, EnCana, Shell, Nexen and Devon contend that gas supplies could be endangered if volumes exceed available capacity after the Line 1 conversion.

Backing TransCanada are ConocoPhillips, Canadian Natural and Suncor, along with the Saskatchewan government.

Hearings in October

The boards opens hearings Oct. 23 on the US$2.1 billion Keystone project, which is designed to initially carry 435,000 barrels per day of oil sands production from Hardisty, Alberta, through Saskatchewan and Manitoba and on to the Wood River and Patoka refinery areas in Illinois.

The undertaking also involves the construction of 225 miles of new pipeline in Canada and 430 miles in the United States.

TransCanada insists the portion of Line 1 (one of six forming its mainline network) it wants to convert is needed for only 4 percent of its gas export capacity out of Alberta.

TransCanada Chief Executive Officer Hal Kvisle says there is enough room to move all of the gas the Western Canada Sedimentary Basin can produce and still have 10 percent unused pipeline space.

The company forecasts the excess capacity will rise over the next 5 to 10 years, reaching a peak in 2009 of 1.3 billion cubic feet per day of the available capacity of 6.47 bcf.

A study commissioned by TransCanada points to relatively flat WCSB supply in the short-term, averaging 16.9 bcf per day in 2009-10 compared with 17.1 bcf in 2006-07, with its own mainline volumes declining to 5.1 bcf per day from 5.9 bcf over the same period.

Demand in Western Canada forecast to grow

During the forecast period, demand in Western Canada is forecast to grow to 6.2 bcf per day in 2013-14 from 4.9 bcf in 2006-07 and 5.5 bcf in 2009-10, further lowering the demand on its mainline system. TransCanada said.

However, Andrew Safir, president of Recon Research of Los Angeles, said Line 1 is an economic necessity because it provides spare capacity that allows WCSB gas to meet demand surges in the North American market, with recent flows on the line frequently exceeding 85 percent of capacity.

On behalf of those opposed to the conversion, GLJ Petroleum Consultants said TransCanada’s throughput methodology is “conservative” and does not reflect the “range of realistically possible outcomes.”

GLJ challenges TransCanada’s assessment that “supply fundamentals have weakened considerably,” arguing that gas-related activity in the WCSB remains strong and total supply is in fact growing slightly, creating “excellent” prospects for net supply growth.

In his regulatory submission, Canadian Natural Senior Vice President of Marketing Real Cusson said the chances of lower gas export capacity are “very small” if the conversion is approved.

“The risks of negative impacts on gas shippers are far outweighed by the benefits of utilizing (Line 1) to provide early expansion of oil transportation capacity,” he said.

Suncor, an oil sands major, warns that if Keystone is not ready by late 2009 crude oil “will be stranded” in Canada in 2010.

EnCana, Canada’s largest gas producer as well as being an emerging oil sands major, says Canada has a major investment in gas export pipelines that should not be curtailed.

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