CALGARY – The economics of TransCanada Corp.’s plan to send Alberta crude as far as Canada’s east coast are “compelling,” a Scotiabank commodities analyst says.
Patricia Mohr said the proposal, which could send up to 850,000 barrels of oil a day along portions of TransCanada’s cross-country mainline natural gas system beginning in 2017, would open up valuable new outlets for Alberta and Saskatchewan crude oil in Eastern Canada and in export markets via tanker shipments from Quebec City and Saint John, N.B.
TransCanada last week said it expects to finalize agreements with prospective shippers backing the conversion of parts of its 14,000-kilometre mainline system to carry oil in the next two weeks. The pipeline could ship crude as far as the east coast by 2018, the company has said.
Initial flows along the pipeline, dubbed Energy East, would likely comprise light oil or upgraded synthetic crude from Alberta’s oil sands, displacing imports priced off more expensive Brent crude into Quebec refineries owned by Suncor Energy Inc. and Valero, Ms. Mohr said in a report.
Transportation costs, known in the industry as tolls, on Energy East to Quebec would be approximately $6 a barrel and $7 to Saint John, compared to $5 a barrel on Kinder Morgan’s expanded Trans Mountain system and $6 to $8 a barrel from Alberta to Texas, she said.
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“Had the pipeline [Energy East] been available in the first half of 2013, the cost of Edmonton Par crude from Alberta delivered to Montreal/Quebec City would have been US$14.85 per barrel cheaper than imported Brent,” Ms. Mohr said.
TransCanada has yet to disclose the economics of Energy East, but Ms. Mohr said greater access to supplies of domestic crude would improve the financial viability of current refineries and “could eventually encourage development of a larger domestic refining industry in Quebec and Atlantic Canada.” [emphasis added]
The refining sector in the Atlantic basin has struggled in recent years amid overcapacity and high prices for imported crude. Imperial Oil Ltd. earlier this year said it would close its 88,000-barrel-a-day refinery in Darmouth, N.S., eliminating nearly 400 jobs, after it failed to find a buyer for the plant.
Ms. Mohr noted refiners in India are interested in importing Alberta blended bitumen. She estimated tanker charges from Quebec City and Saint John to India’s west coast average US$4.20 per barrel in a Suezmaz vessel.
A marine terminal at Saint John would be ice-free year-round, she added, and could accommodate very large crude carriers of 350,000 deadweight tonnes, a reference to the cargo carrying capacity of a vessel. The larger ships would cut transport costs to India to US$3 a barrel, she said.
Assuming a US$3 per barrel quality discount, Western Canada Select, the heavy oil marker in Alberta, “could have earned a much higher price in India than actually received” in the first half of 2013 based on the price of Saudi Arabian heavy crude delivered to India, she said. [emphasis added]
Oil prices in Alberta have strengthened as new pipelines and continued rail shipments clear a supply glut at the storage of hub of Cushing, Okla.
Ms. Mohr predicted prices for WCS would jump to US$90 per barrel in July, up from US$75.41 in June. The Alberta heavy blend would average US$89 in the third quarter, compared to US$62.37 in the first quarter, she said. For the year, WCS prices should average US$78, from US$73.21 last year. “
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