TransCanada plots new pipelines for surging North American oil output

In this file photo, TransCanada CEO Russ Girling, right, and TransCanada president of energy and oil pipelines Alex Pourbaix announce the company is moving forward with the 1.1 million barrel-per-day Energy East Pipeline project at a news conference in Calgary, Alta., Thursday, Aug. 1, 2013. (Jeff McIntosh / THE CANADIAN PRESS)

CALGARY -- Chances are good TransCanada will get into the rail business regardless of whether its long-delayed Keystone XL pipeline is built, CEO Russ Girling said Wednesday.

But how big a rail player TransCanada becomes will depend on the fate of its proposal and others, he said.

For several months, TransCanada has been floating the idea of a "rail bridge" while its US$8-billion cross-border pipeline remains in regulatory limbo.

TransCanada is in "active negotiations" with shippers about moving their crude by train, but there's no timeline for when the plan will be a go, Girling told reporters following TransCanada's annual investor conference in Toronto.

"I would say there's a better than 50-50 chance that we will be in that business in some form or fashion in the future and it will take us some time here to actually nail down the agreements to underpin those investments."

Though TransCanada touts pipelines as the safest and most efficient mode of transport, it sees a long-term role for rail for the energy industry.

"I think the marketplace has learned that it is flexible, it can be put in place relatively quickly, it doesn't have the same regulatory hurdles as building pipe does," said Girling.

"I think it plays a larger role in the future than it has in the past, and therefore it's likely a business that we're in long term, irrespective of Keystone."

The magnitude of TransCanada's rail investment will depend on the fortunes of Keystone XL and other U.S. pipeline proposals.

"To the extent that they're delayed, I would say the scale of that business would be larger than it would be if we see these approvals happen in the near term," Girling said.

He made his remarks a day after efforts to speed along Keystone XL's approval were narrowly defeated in the U.S. Senate.

The U.S. regulatory process for Keystone XL has been dragging on for more than six years, amid court challenges, political wrangling and sustained opposition by environmental and landowner groups.

The existing Keystone network has been shipping 591,000 barrels per day crude to the Midwest since 2010 and in January of this year began deliveries to the U.S. Gulf Coast.

The contentious Keystone XL project would add a new segment of pipe cutting across Montana South Dakota and Nebraska with a capacity of 830,000 barrels per day.

Though most of Keystone XL's volumes would come from the oilsands, TransCanada is planning an "on ramp" in Montana that would carry up to 100,000 barrels per day of crude from the Bakken formation.

Meanwhile, TransCanada is plotting new pipelines that would tap into burgeoning U.S. shale oil deposits, said Paul Miller, the executive in charge of oil pipelines.

North American crude production is expected to grow 40 per cent to 14 million barrels per day by 2020 -- between the oilsands, the U.S. Bakken formation centred in North Dakota and shales in Texas and Colorado.

"In the United States, there's numerous shale plays that do require transportation solutions," said Miller, adding TransCanada is eyeing expansions in northern Alberta's oilsands region, too.

"Some of those have the opportunity to connect to our existing Keystone system and some of those would be independent of our existing Keystone system."

Earlier Wednesday, TransCanada said it's aiming to accelerate the growth of its dividend over the coming few years.

Girling told the investor conference the dividend is expected to grow by an average of at least eight per cent a year through 2017.

The company's dividend has been growing at an annual rate of around 4.5 per cent in recent years.

Girling said the dividend growth could reach 10 per cent, depending on whether major projects -- Keystone XL and major natural gas pipelines to West Coast LNG projects, for example -- go ahead.

Earlier this week, an activist investor urged TransCanada to make changes in order to boost its share price.

Sandell Asset Management Corp. wants TransCanada to transfer more assets to its master limited partnership, TC Pipelines LP, and to spin off its power business. TransCanada has called Sandell's analysis "flawed" and said it's sticking to its current strategy.