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TransCanada Crude Oil Pipeline

Written By Brianna Panzica

Posted October 31, 2012

North American oil and gas production has been rising for years. In the U.S., decreasing oil production has reversed since 2005, headed higher each year since.

In Canada, total oil production has been on its way up for the past thirty years:

Total Oil Production US  Total Oil Production Canada
              U.S. Oil Production                              Canada Oil Production

Between the shale boom in the U.S. and the oil sands development in Canada, North America has a very promising energy future.

Not to mention the trillions of cubic feet of natural gas in both countries.

The problem with natural gas, however, is the abundance has pushed North American prices down. And these low prices, coupled with the high price of developing a shale well, has caused some companies to turn their focus towards oil.

TransCanada Corp. (TSE: TRP) is one of these companies.

On Tuesday, the Canadian company announced a plan to revamp an underused natural gas pipeline that extends across Canada, from the Western region through Montreal.

Called the Mainline Conversion Project, this venture would convert part of the existing pipeline to move crude oil. It would also extend the pipeline to feed refineries on the East Coast of the U.S. and in Eastern Canada.

The company’s goal is to ship between 500,000 and one million barrels per day in the converted pipeline. It would pick up both synthetic crude in the Alberta oil sands and light, sweet crude from North Dakota and Montana’s Bakken shale.

It would then carry this crude east, perhaps supplying a Quebec City refinery, or maybe bringing the oil to coastal tankers that would ship it internationally.

From Reuters:

“The East Coast of Canada is an obvious market, the East Coast of the United States is an obvious market, but certainly (also) Europe and some of the Asian markets that can be accessed economically,” [TransCanada CEO Russ] Girling said. “Those would be dependent upon whether or not those customers…have an interest in buying Canadian crude.”

The company has said it will not determine the final destination of the pipeline until it has discussed interest with shippers and refineries.

The project would carry a hefty price tag of $5 billion, but it would also likely prove very profitable for TransCanada. Since 80 percent of the line is already in the ground, the majority of the project would be pipeline conversion.

The bulk of the work will be the construction of pumping stations. The company will also have to buy out the gas contracts to remove the gas from the line.

But Girling has called it “very competitive.” Its main competition will likely be Enbridge’s (TSE: ENB) Sarnia pipeline, the Edmonton Journal suggests, currently being redirected to move oil sands crude from Alberta to Toronto and Montreal.

TransCanada’s third quarter earnings report was less than sterling. Net income dropped to C$369 million from C$384 million, and revenue was down 4 percent to C$2.13 billion.

It’s Canadian Mainline natural gas pipeline also experienced a 6 percent drop in revenue.

But this new project could provide an opportunity for the company to turn these numbers around. With oil moving across North America and the potential for exports of this highly demanded resource, the profits could be enormous.

TransCanada has not made a final decision on the Mainline Conversion Project, but one is due out by early 2013.

That’s all for now,

Brianna Panzica

follow basic@brianna_panzica on Twitter

Energy & Capital’s modern energy guru, Brianna digs deep into the industry with accurate and insightful updates into the biggest energy companies and events. She stays up to date with the latest market moves and industry finds, bringing readers a unique view of current energy trends.

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