The slugfest between Alberta's pipeline heavyweights just got nastier.
TransCanada Corp., in proposing to build a $1.7- billion US pipeline to transport crude from the oilsands to Illinois in the American heartland, prefers to duke it out with cross-town rival Enbridge Inc.
TransCanada chief executive Hal Kvisle evidently wants to go it alone on huge projects (including the $20-billion US Alaska Highway pipeline) that could boost the bottom line for both companies if they became partners instead of pugilists.
TransCanada, a natural gas shipper that hasn't pipelined oil for years, is aiming a roundhouse right directly at the chin of Enbridge, which operates Canada's largest oil pipeline system.
Enbridge's own proposal, its Gateway pipeline, would ship 400,000 barrels per day (b/d) of oilsands synthetic crude through northern B.C. to the Pacific north coast, and from there to California or China.
TransCanada's 3,000- kilometre Keystone pipeline would also ship 400,000 b/d. Gee, what a coincidence!
In putting its Keystone line in the ring, TransCanada is also taking on Vancouver-based Terasen Inc.
Terasen's proposal is to expand its Trans Mountain pipeline from Edmonton to Vancouver by 75,000 b/d by 2008.
Future phases of the project, possibly including a new line in northern B.C., would add another 550,000 b/d.
Terasen said earlier this month it has informal support from 17 oil producers, refiners and oil buyers to spend $570 million on the first phase of its pipeline.
For their part, TransCanada and Enbridge both say there's room enough - with one million barrels per day of new product expected to flow from the Athabasca oilsands by 2010 - for both their pipelines. Some analysts disagree.
In a research note reported in the media last week, BMO Nesbitt-Burns analyst Karen Taylor warns that too much competition could leave no winners.
That's because oilsands producers, already benefiting from lower shipping rates as Enbridge and Terasen go toe-to-toe, also now have TransCanada to play off the other two in negotiating even cheaper tolls.
Some analysts see TransCanada's move as payback to Enbridge for daring to challenge TransCanada's decades-old permits to build the Alaska Highway pipeline.
But nervous investors should hope the pipeline business hasn't deteriorated into a sandbox shoving match.
Maybe it's time for some shareholder pressure to make CEOs realize that sometimes it is better business to shake hands than throw punches.
Canadian Natural Resources Ltd. (CNRL) has approved the start of its $10.8-billion Horizon oilsands project north of Fort McMurray.
CNRL said last week that its board unanimously approved the first phase of Horizon, which will cost about $6.8 billion.
The project is planned to initially produce 110,000 b/d of synthetic crude by late 2008, ramping up to 232,000 b/d by 2020.
Cost overruns bigger than Kirstie Alley's thighs have weighed down new oilsands projects. But, in a marked departure from previous projects, CNRL chairman Allan Markin says his company has engaged several firms to provide lump sum or fixed-cost price bids for work amounting to about 68 per cent of the costs of Horizon's first phase.
CNRL expects to spend $1.4 billion on Horizon this year, $2.2 billion in 2006, $2 billion in 2007 and $1.2 billion in 2008.
Also in the oilsands, Suncor Energy Inc. says it expects its upgrader, which caught fire Jan. 4, to return to full production capacity of 225,000 b/d by the summer.
Suncor says its preliminary investigation found that the likely cause of the fire was corrosion in a recycle line. The corrosion caused the line to break and release hydrocarbon vapour, which then ignited.
The line, which filters heavy oil during the upgrading process, wasn't lined with stainless steel. Suncor says it's now applying stainless steel linings where appropriate in other parts of its operations.
The obvious question, of course, is why did the company not do this before being forced to by the fire - especially in equipment subject to corrosion in a volatile process?
Suncor president and CEO Rick George announced last month that northern Alberta beat out the U.S. for the company's new upgrader - the third to be built beside Suncor's oilsands mine north of Fort McMurray.
The new upgrader will be a "giant," in terms of capacity, compared with the other two plants. Let's hope the giant comes lined with stainless steel.
The Mackenzie Valley pipeline is losing the race to its bigger Alaska 'cousin.' It's hard to come to any other conclusion, after reports last week that the Deh Cho First Nations in the Northwest Territories are resuming legal action aimed at blocking the $7-billion Mackenzie project.
The Deh Cho, which had put their two lawsuits on hold, say they're fed up with the lack of progress in resolving their governance and land claim issues with Ottawa, after months of jawboning with federal bureaucrats.
In fact, the Mackenzie project has taken two steps backward.
Regulators have halted the environmental review of the 1,220-kilometre line, until the natural gas producers' consortium led by Imperial Oil Ltd. details exactly how the mega-project will affect communities along the route.
The joint review panel says it won't schedule hearings until the developers fill the information gaps in Imperial Oil's 6,500-page submission. Meanwhile, U.S. regulators agreed last week on rules aimed at speeding development of the $20-billion US Alaska Highway pipeline.
According to reports, the new rules issued by the Federal Energy Regulatory Commission will require project developers BP plc, ConocoPhillips and ExxonMobil Corp. to offer access to the pipeline to all interested users on equal terms. Developers also would have to allow for expansions in the system to accommodate growth in Alaska's natural gas output.
The new rules should help developers gauge demand for the pipeline and line up financing for the project.
But what should really worry the would-be Mackenzie Valley pipeline builders in Canada is that mention of allowing for expansions in the Alaska Highway pipeline.
Those expansions - if not the U.S. line itself - will render the Mackenzie line, if it's not built first, about as attractive as Ozzy Osbourne in a thong.
(Mark Lowey can be reached at mark@businessedge.ca)
