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As if the great debates over proposed pipelines to export oil to the United States and Asia weren’t convulsing Canada enough, a new one is about to divide the country. It involves the future of TransCanada Corp.’s historic Mainline.
For more than half a century, the Mainline has been a reliable workhorse that over winter peaks moved as much as seven billion cubic feet a day (bcf/d) of natural gas from Western Canada — roughly half of its total production today — to warm up homes and energize factories in Eastern Canada.
But its use has fallen off sharply during the rest of the year because of the emergence of alternative supplies nearby, pushing pipeline tolls and tempers at both ends of the system through the roof. Indeed, tolls are so high they exceed the price of the natural gas it transports.
While recent oil sands pipeline debates have pitted the oil producing community against the environmental movement, the restructuring of the Mainline is rubbing many old wounds between the energy-producing West and the consuming East.
Indeed, when Canada’s energy regulator, the National Energy Board, kicks off four months of hearings on June 4 in Calgary that will include extended stops in Toronto and Montreal, many of the issues debated during the Mainline’s inception six decades ago will resurface.
Some of the same stakeholder groups will also re-appear — Western Canadian producers, Eastern Canadian utilities and TransCanada itself — all with the goal of getting stuck with as little as possible of the $6-billion pipeline’s untenable costs.
Then and now, at issue is whether it’s in the public interest to ship Western Canadian gas to Eastern markets despite high transportation costs as a way to ensure national energy security, when more economic north/south and other solutions are available.
The NEB’s three-member panel, headed by CEO and chairman Gaétan Caron, will have to sort out how to make best use of the 14,101 kilometres of infrastructure, running from Alberta to Quebec, which it regulates. It will have to set new tolls, decide how to allocate risks and rewards among Mainline shippers and other stakeholders and decide whether the Western Canadian Sedimentary Basin should be linked to Eastern markets.
While not officially part of the hearing, there is a new twist to the debate: TransCanada is floating a plan to give the Mainline a new lease on life by converting part of the system to oil service. The multi-billion plan would create a new domestic market for oil sands oil in Eastern Canada at a time other plans are bogged down by environmental opposition, provide respite from high tolls for natural gas shippers and get TransCanada out of a jam. But this, too, is already stoking debate about whether shipping Western oil eastward is the way to go, when larger world oil markets beckon.
The first time Canadians had a Mainline debate was in the 1950s. TransCanada’s predecessor, TransCanada Pipelines Ltd., had just been created with the goal of building a 3,200-kilometre natural gas pipeline linking Alberta to Quebec. The project played into the day’s federal Liberal government political imperative that Canada needed to meet its energy needs before Alberta gas could to flow to the U.S., oil patch historian Earle Gray writes in The Great Canadian Oil Patch.
Producers had strong doubts that shipping gas over such a long distance would be economically feasible or preferable to market-favoured solutions — such as piping Alberta gas to closer southern markets and nearby U.S. gas to Eastern Canadian markets. But the project went ahead and the first gas from Alberta arrived in Toronto on Oct. 27, 1958.
For the rest of this article, please go to the National Post website: http://business.financialpost.com/2012/05/25/retooling-transcanadas-mainline-could-spur-canadas-next-great-energy-debate/