Energy East pipeline conversion faces building pushback in Quebec

MONTREAL—Pushback is building in Quebec over TransCanada Corp.’s $12-billion, cross-country project to convert a natural gas pipeline to oil, just weeks before the company files its formal proposal with the national energy regulator.

Quebec’s largest natural gas distributor, Gaz Metro, plans to enlist the support of the provincial government to oppose the project that it says will lead to supply shortages, higher prices and threaten Quebec’s economic growth.

“The project in its current version is problematic as it will impede the possibility for natural gas users to have access to the necessary capacities once the conversion happens,” spokesperson Marie-Christine Demers said after Gaz Metro made its case last week to the province’s energy regulator.

She said the company plans to push the government to intervene when the proposal goes before the National Energy Board (NEB) for approval.

Specifically, Gaz Metro said the conversion of the 3,300-kilometre Energy East pipeline between Alberta and Quebec will reduce the supply of natural gas for customers during peak winter months and for economic development.

Energy East would be one of the biggest infrastructure projects in Canadian history, crossing six provinces and traversing 4,600 kilometres in total.

Roughly two-thirds of it would make use of underused natural gas pipe that’s already in the ground, with new pipe being built through Quebec and New Brunswick.

The idea is to connect oilsands crude to eastern refineries and to export some of the oil by tanker.

TransCanada said the project will remove the 20 per cent excess natural gas capacity on the eastern network that is destined for export to the northeastern United States, and it has plans to build more lines to meet any increased demand.

“We’re taking nothing away from the Canadian domestic demand,” said Karl Johannson, executive vice-president of natural gas pipelines.

The Calgary-based company plans to build a parallel Eastern Mainline pipeline that will stretch for a few hundred kilometres in southern Ontario, to carry natural gas to consumers in Quebec and Ontario.

“TransCanada has served the natural gas market for over 60 years,” Johannson said. “If there is growth we will make sure the facilities are there for growth.”

But Gaz Metro said the pipeline section between North Bay, Ont., and Ottawa is now fully used by customers at peak winter periods.

It also sees reduced capacity driving up costs for consumers, who would also be on the hook to absorb more than $1.5 billion in infrastructure costs to build the parallel pipeline.

Ontario’s Union Gas Ltd. and Enbridge Gas Distribution Inc. have also raised similar concerns about the Energy East conversion.

Johannson said he understands that local natural gas distributors want to maintain surplus capacity, but that comes with costs both for natural gas customers and the unrealized economic benefits of sending 1.1 million barrels of crude oil per day to refineries in Quebec and New Brunswick.

“By not repurposing this capacity, Canadians and Quebecers lose a lot,” he said in an interview.

A Deloitte Touche Tohmatsu Ltd. study said the conversion will boost the Canadian GDP by $35 billion over 20 years, add $10 billion in taxes, support 10,000 jobs and help eastern refineries.

The developers of a $1.6-billion fertilizer plant in Becancour, Que., said its project—which is one year behind schedule because of its difficulty to lock up natural gas supplies—is at risk unless it can obtain a reliable supply of natural gas.

David Tournier, vice-president of legal affairs for IFFCO Canada Enterprise Ltd., said the project’s shareholders are growing impatient by the delays in the regulatory dispute.

“Without gas, there can be no plant,” he said. “Our plant transforms natural gas into fertilizer and we settled in Quebec to have access to that gas at a time where there was no issue.”

Tournier said IFFCO isn’t taking a position on the Energy East conversion but is awaiting the NEB’s decision on a tariff hike TransCanada has sought to provide access through southern Ontario to cheaper U.S. Marcellus shale natural gas.

Regulatory approval this year could allow construction of the fertilizer plant to begin in 2015 for a 2018 opening.

TransCanada said it has incorporated IFFCO’s natural gas needs into its supply plans and would provide the energy from Western Canada even if the NEB turns down its tariff request.

Separately, the Quebec government announced this week it would not allow the company to resume exploratory drilling in eastern Quebec because it had failed to submit an “acceptable” alternative to its work methods.

The Environment Department told TransCanada last week to devise a plan that would provide for less noise because of belugas in the area.

The department said the company has not met the demand.