In the shadow of a multibillion-dollar friendly takeover announced earlier this month, Vancouver-based industrial conglomerate Terasen Inc. is starting initial work to double the capacity of its Corridor oilsands pipeline in northern Alberta.
Terasen's Calgary-based pipeline division has begun engineering, environmental and consultation work to build a second pipeline - alongside and nearly twice as big as the existing one - connecting the Shell Canada-operated Athabasca oilsands project north of Fort McMurray to its refinery on the outskirts of Edmonton.
Although no pricetag was given for the expansion, Terasen spokesman Phillippe Reicher called it "a significant capital investment.'' Last week, Houston-based pipeline company Kinder Morgan offered $6.9 billion for Terasen, which has several key crude pipelines running out of Alberta, a gas distribution network and waterworks division.
Reicher said Kinder Morgan is in support of all its oilsands-pipeline expansion plans.
"Obviously they're aware of all the pending or existing projects that we have on the go, and up until there's an official transfer of ownership, we're continuing to operate and manage our project under Terasen Pipelines.'' The initial Corridor line, built between 1999 and 2002, cost Terasen (TSX:TER) about $700 million and includes a 24-inch line taking oilsands bitumen south. There is also a 12-inch line that ships diluent - the chemicals needed to make the gluey oilsands fluid enough to move by pipe - back up north.
With steel prices soaring and northern Alberta's labour market remaining tight, making the proposed new 42-inch diameter line could be significantly more costly than the initial pipeline.
Expansion of the Corridor line has been expected since last September when Shell (TSX:SHC) announced its intentions to spend $4 billion - last week increased to $7.3 billion - to nearly double production from Athabasca by the end of the decade.
Athabasca, which began operating two years ago, is Canada's third oilsands mega-project converting bitumen into synthetic crude oil to supply growing North American demand for fuels.
Shell is the operator of Athabasca holding a 60-per-cent stake, with Western Oil Sands (TSX:WTO) and Chevron Canada each with 20 per cent.
The line connects Athabasca's Muskeg River open-pit mine to Shell's Scotford refinery near Edmonton. The planned expansion will boost capacity from 260,000 barrels of diluted bitumen daily to about 500,000 barrels by 2009.
"This expansion is really meant to deal specifically with Shell's expansion,'' said Reicher.
But the expansion plans will also be designed to support further expansions at relatively low cost by adding extra pump stations. This could allow Corridor to pump oil from other projects as well as Athabasca.
A huge list of new oilsands projects are slated for development in the next few years, triggering expectations that oilsands production could nearly triple from the current output of one million barrels per day.
It is this exponential oilsands growth and the potential for decades of increased revenues to both producers and shippers that prompted Kinder Morgan's $6.9-billion cash, share and debt deal.
Along with the Corridor line, Terasen currently moves oilsands crude to the American Midwest through its Express pipeline and to the West Coast through its Trans Mountain system.
Both of these lines are undergoing incremental expansions with several other larger growth plans being considered.
In addition to Terasen's pipeline assets, the company holds water and wastewater treatment operations across B.C. and Alberta, a business that would be outside of Kinder Morgan's core business and could possibly be sold off.
Terasen operates British Columbia's major gas distributor, with about 875,000 customers.
