Too many pipelines? A look at which project is likely headed for the chopping block

Too many pipelines? A look at which project is likely headed for the chopping block

Enbridge CEO Al Monaco suggested this week there's one too many pipeline expansions being planned in Canada, hinting that the country's oil export capacity risks becoming under-utilized.

Enbridge's Line 3 replacement project will add another 370,000 bbl/day of export capacity from Alberta's oil sands to the Midwest. The company also plans to boost capacity on its existing network by 175,000 bbl/day, provided it can find enough customers to sign-up for the additional volumes.

Monaco suggested that either Keystone XL or the Trans Mountain Expansion (TMEP) would be required through 2025, but not both. Judging from the CEO's comments, the company has placed Northern Gateway on the permanent back-burner, although the project is on life-support at best as long as the Trudeau Liberals are in power.

Given the current rate of expansion in the oil sands, capacity on Line 3 is expected to be filled by 2020 while additional capacity on Trans Mountain should be absorbed by 2025. 




Approval of the 850,000 bbl/day Keystone XL pipeline was never considered since Hillary Clinton (a former Keystone XL supporter turned pipeline adversary) was widely expected to win the US election. The surprise victory of Donald Trump revived the project, long left for dead. Should Keystone XL be built, output from the oil sands wouldn't totally fill the line until after 2030.

However, Monaco failed to account for differences in each pipeline's customer. Most of Enbridge's pipelines, including Line 3, delivers oil from Alberta to the Midwest, currently the largest customer for Canadian oil. The Midwest has a refining capacity of just under 4 million bbl/day.

In contrast, Keystone XL would serve refineries in the Gulf Coast, a much bigger market for Alberta's oil exports. Gulf Coast refineries are facing declines in heavy oil supply out of Venezuela and Mexico and remain the most desperate market for Alberta's heavy oil. Most importantly, the Gulf Coast has a refining capacity of 9.6 million bbl/day, making it one of the largest refining hubs in the world. And that's a market no oil producer can ignore.

The 590,000 bbl/day Trans Mountain expansion is the shortest distance from the oil sands to tidewater, and by extension the quickest route to a rapidly expanding Asian market. The government of Alberta seems convinced TMEP is the province's best bet to getting anywhere near world oil prices for its heavy diluted bitumen. And so far, the province of BC seems to be on board.

However, Enbridge's CEO may have a point about there being too many pipelines on the books.

If anything, the approval of Keystone XL would render Energy East redundant and unnecessary, unless output from Alberta grows more quickly than anticipated. 

The other big elephant in the room is Alberta's 100 Mt/year carbon emissions cap, which will be reached by about 2027 under the current trajectory. Barring a major step change in technology (or more likely, a change of government policy), Energy East will likely never be required.




Although sending Canadian oil to Canadian refineries sounds like a great nation building exercise, Energy East is a horribly long route to a very small market. 

The 4,500 km line would transport over 1 million bbl/day to a region that currently imports only 500,000 bbl/day, meaning the rest would have to be loaded onto a tanker. The market for heavy oil in Europe is limited at best. And the distance to Asia, around South Africa, would make it one of the longest shipping routes in the world.

Refineries located near tidewater (like Irving Oil's 300,000 bbl/day New Brunswick refinery) will always have access to a variety of global feedstocks, delivered by tanker, guaranteed to be much cheaper than the tolls on a 4,500 km pipeline. Energy East crosses too many provinces and is politically unpopular in voter heavy regions of Quebec, posing a big dilemma for the federal government. Most importantly, after building Keystone XL (which was not in the plan, at least not this soon), TransCanada will likely not have the funds to execute Energy East.

So Enbridge's CEO is partially right about there being one too many pipeline expansions being planned in Canada. But it likely won't be TMEP or Keystone XL on the chopping block.


Enbridge Line 3 370,000 1,100 $7.5B
Kinder MorganTMEP 590,000 1,180 $6.8B
TransCanada Keystone XL 830,000 1,900 $10B
TransCanada Energy East 1,100,000 4,500 $15.7B
(bbl/day) (km) (CAD)
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TransCanada construction crew knocks out Enbridge's Line 2A condensate pipeline