Environmental groups question refinery benefits of Energy East in new report

CALGARY -- A new report released by environmental groups questions whether the proposed Energy East pipeline is necessary to supplant Eastern Canada's oil imports from the foreign suppliers frequently mentioned by TransCanada Corp. (TSX:TRP), the company proposing the $12-billion project.

In making the case for the massive cross-Canada project, TransCanada has said repeatedly that eastern Canadian refiners rely on imports for 86 per cent of their daily needs. It often lists Saudi Arabia, Nigeria, Venezuela and Algeria as the top suppliers to Quebec and the Atlantic provinces.

But Environmental Defence and Greenpeace looked at Statistics Canada international trade data and come to a different conclusion in their report released Wednesday: Saudi Arabia, Algeria and Nigeria made up about 14 per cent of Eastern Canada's crude imports for the first eight months of this year, while Venezuela doesn't crack the list.

TransCanada will file its regulatory application for Energy East to the National Energy Board on Thursday. The project would be among the largest in Canadian history, spanning six provinces and 4,600 kilometres.

Crude would be shipped about two-thirds of the way through a repurposed natural gas pipeline that's already in the ground, with new pipe being built through Quebec and New Brunswick.

Between January and August of this year, the United States was the top supplier of crude to Quebec and New Brunswick -- the destination points for Alberta crude that would flow through Energy East -- making up about half of total imports in both cases. In recent years, fracking technology has helped unlock huge amounts of crude from shale deposits in North Dakota and Texas.

In addition to supplies from the U.S., Quebec got about 11 per cent of its crude imports from Algeria and 2.6 per cent from Nigeria, according to Statistics Canada. Other countries on the list include Norway, Angola, Mexico, Azerbaijan, Kazakhstan and the United Kingdom.

New Brunswick, home to the country's largest oil refinery, got about 22 per cent of its imported crude from Saudi Arabia, second most after the United States, with Egypt, Norway, Angola, Ivory Coast, Brazil, Cameroon and the United Kingdom rounding out the list.

Newfoundland, home to a refinery in Come by Chance that's recently been sold, received the bulk of its crude from Iraq, but it's not on Energy East's route. A refinery in Dartmouth, N.S., closed last year.

"There's a lot of rhetoric flying around about nation building and job creation in the east and we just don't see any evidence of it," said Adam Scott, with Environmental Defence.

"A lot of people are very concerned about making sure Canada gets value for its resources and we really want to make sure that nobody is misled by this marketing ploy of theirs. It's very disingenuous."

All along, TransCanada has been clear that a big part of Energy East's raison d'etre is to ship Alberta crude to lucrative global markets. Export terminals are planned for eastern Quebec and Saint John, N.B., that would enable tankers loaded with Canadian oil to travel to Europe, India and other destinations, securing a better price for producers.

But the benefit to domestic customers has been a big selling point, too.

TransCanada spokesman Shawn Howard dismissed the report by "professional activists," saying more domestic crude will be refined within Canada once Energy East starts up, which will create jobs and make refineries more competitive.

"The price of oil or exact percentage of imports are always snapshots in time, but the trends remain consistent. Today, an overwhelming majority of the oil refined in eastern Canada comes from outside Canada. In fact, as we've shown before, about 86 per cent of the oil refined in eastern Canada to make products and meet our domestic needs comes from outside of Canada," he said in an emailed statement.

"Energy East is designed to shift that and allow the movement of oil from western Canada so that eastern refineries can use a more stable, less costly supply of oil. Energy East is already underpinned by long-term, binding contracts and our customers know the project will provide greater security and diversity of supply to eastern refineries."

Howard acknowledges the increasing volumes of crude from the United States, but said it remains the case that most of the crude being imported into Canada is from OPEC members.

A report penned by consulting firm Deloitte on behalf of TransCanada in September 2013 found Energy East is expected to be a boon to eastern refineries.

"Eastern Canadian refineries could benefit from the Energy East project due to access to lower cost feedstock, a stable and long-term supply of crude oil and increased negotiating power for long-term crude oil supply contracts," the report said, citing 2012 Statistics Canada data.

The Deloitte report said Quebec refineries get just eight per cent of their supplies from Canada, with those in Atlantic Canada accessing 17 per cent locally. Imports from members of the Organization of Petroleum Exporting Countries made up 45 per cent of Quebec's feedstock and 50 per cent of Atlantic Canada's, it said.