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West-East Bitumen Pipeline in Canada Gets Boost

This week the province of Alberta signed a memorandum of understanding to pay up to $5 billion in tolls for transportation of its crude oil to eastern Canada. What is involved is TransCanada's plan to build the so-called Energy East pipeline to Quebec and perhaps still further east. Albertan government and business figures insist, however, that the commitment is not to spend the money but to sell barrels of oil: 100,000 barrels per day (bpd) for 20 years.

According to the provincial government, Albert holds the third largest proven oil reserves in the world after Saudi Arabia and Venezuela.

The provincial government expects eventually to dispose of 400,000 bpd of bitumen in lieu of receiving financial royalties. Yet this agreement merely represents a promise to pay for the shipping in case the pipeline is built. Indeed, TransCanada, intends that the approximately 2,700-mile long Energy East project should carry between 500,000 and 850,000 bpd. Clearly this commitment by the Alberta government is insufficient by itself to justify the pipeline.

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It will not have to pay anything if the pipeline is not built.

The project comprises the conversion and refurbishment of existing pipeline, the construction of new pipeline, and the construction of new pipeline facilities (including new terminals in Saskatechewan, the Quebec City region and St. John in New Brunswick province). It is planned to depart from a new tank terminal in Hardisty, Alberta, and supply existing refineries in Montreal, Quebec City, and St. John, as well as feed marine tanker loader facilities in the latter two cities. The projected dates of entry into service are late 2017 for Quebec and 2018 for New Brunswick.

The move signifies that Ottawa has decided to rationalize further its domestic energy supply market, and does not intend to rely upon the United States for approval of the controversial Keystone XL pipeline or upon British Columbia province for approval of the export-dedicated Northern Gateway pipeline. The Canadian energy industry nevertheless maintains that all three pipelines are desirable to meet the country's export potential in future years. At present, because the U.S. is the only export market for Canadian energy due to lack of other export pipelines, heavy crude from Canada's oilsands trades at almost US$16 per barrel less than the West Texas Intermediate benchmark.

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New Brunswick's energy minister says that his province has no intention to subsidize the Energy East pipeline. He expects the project to be profitable on its own. This could be the case if Canadian crude is exported overseas from the eastern part of the country, which today relies upon imports at world market prices. The project would thus certainly benefit drivers in Atlantic Canada, who already pay gas prices 20 per cent higher than in the Western provinces.

By. Robert M. Cutler

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