Varcoe: 'Watershed moment' — After a long wait, new pipelines are coming for Canada's oil and gas sector

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It’s taken a long time for the Canadian oil and gas sector to see major new pipelines built, but now “we’re very close,” says Whitecap Resources CEO Grant Fagerheim.

After years of waiting, two pipeline projects that have been under construction in Western Canada are finally in the home stretch and expected to be completed in the coming months.

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For an industry that’s faced transportation bottlenecks and, at times, deep price discounts for its oil and gas, this is a monumental moment.

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“Our Canadian energy sector is on the cusp of adding significant pipeline takeaway capacity for both crude oil and natural gas,” Fagerheim said Thursday during the company’s third-quarter earnings call.

Work on the $30.9-billion Trans Mountain expansion, which will nearly triple the line’s existing capacity to move oil products to the West Coast, is nearly complete, with about 10 kilometres of pipe left to put in the ground in British Columbia.

Earlier this month, Trans Mountain Corp. CEO Dawn Farrell told the Herald that the expansion is on pace to start commercial operations by the end of March.

Once construction is finished, commissioning work will begin. Filling the line with 4.5 million barrels of oil is anticipated to begin near the end of January and take about 40 days.

Meanwhile, construction on the $14.5-billion Coastal GasLink pipeline — which will move natural gas to the LNG Canada project on the B.C. coast — was nearly 95 per cent complete as of the end of September.

Earlier this summer, Calgary-based TC Energy said the project’s mechanical completion was expected by the end of this year. The Shell-led LNG project is anticipated to start operating in 2025.

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After watching proposed pipeline projects such as Energy East, Northern Gateway and Keystone XL flounder, the completion of the Trans Mountain expansion and Coastal GasLink pipeline “is a watershed moment for Canada,” Fagerheim said in an interview Friday.

“This is very significant. It’s not here today, but you can feel it. We’re very close.”

For oil producers, the TMX completion is significant as the industry has faced years of transportation constraints, rationing of pipeline space and, on occasion, a steep blowout in the price discount on western Canadian crude.

On Friday, Imperial Oil CEO Brad Corson noted the price differential between Western Canadian Select heavy oil and benchmark U.S. crude has widened in recent weeks due to several factors.

Major oilsands projects have completed maintenance programs from earlier in the year and are back producing more oil that’s available to move to customers. Meanwhile, some refineries in North America are now undergoing maintenance work.

The price differential sat around $25 a barrel earlier this week, compared with $12 in June.

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The long-awaited startup of the Trans Mountain expansion (TMX) project should help, Corson said.

“We are quite encouraged by the progress that TMX is making,” Corson said on an earnings call.

“As we see that TMX comes online, we do see that as favourable — supportive — of a tighter differential. So as we look to next year, we do expect tightening versus where we are today.”

Farrell said every $1-a-barrel reduction in the price differential is worth $1.2 billion per year to the bottom line of energy producers as the pipeline allows them to access new markets.

“What it means is that Alberta no longer has the situation where it’s selling its oil to only one market and we’re an absolute price-taker. So the differential between the world price of oil and the Alberta price starts to close,” she said at the time.

The completion of Trans Mountain and more pipeline capacity — a decade after a regulatory application was first filed, and well above its initial $5.4-billion budget — will also encourage producers to spend money and grow production, Fagerheim said.

As for natural gas, finishing Coastal GasLink and the startup of LNG Canada in 2025 will allow domestic product to be exported to countries outside of the United States, accessing markets in Asia.

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With an export capacity of 1.8 billion cubic feet (bcf) per day, LNG Canada is the first of what the industry hopes will be several such projects built on the Pacific coast.

A report by RBC this month forecasts total Canadian natural gas sales volumes will climb to about 21 bcf per day by the end of the decade, up from 17.5 bcf per day currently, as LNG demand increases.

To meet the demand, more exploration and production will be required.

Precision Drilling CEO Kevin Neveu said Thursday that with the Trans Mountain expansion and Coastal GasLink — and possibly the approval of a second phase of LNG Canada — demand for drilling rigs in the country will climb.

“Our outlook for Canada remains uniquely strong,” he said on his company’s earnings call.

For Fagerheim and other petroleum producers, it’s been a long wait to see major new pipelines come to fruition, after years of disappointments and delays.

That’s about to change, he said.

“This is good for pipeliners, it’s good for job creation, it’s good for revenue generation for the country, the provinces,” Fagerheim added.

“We’re going to get these things built. And although it’s taken us a long time, we want to demonstrate to the world that we can actually build things here in Canada.”

Chris Varcoe is a Calgary Herald columnist.

[email protected]

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