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Canadian Oilsands Producers to Get Gas 'Lifeline'

A jumbo addition to Alberta's TransCanada-Nova natural gas pipeline grid has won approval as an essential new "lifeline" for growing oilsands plants. Syncrude Canada, the biggest bitumen extraction and synthetic oil upgrading complex, coined the nickname in urging the Alberta Utilities Commission (AUC) to approve speedy construction.

Syncrude led industry supporters of the project, which included 13 other oilsands developers, the Canadian Association of Petroleum Producers and the Industrial Gas Consumers Association of Alberta. The decision authorizes TransCanada-Nova to lay 300 kilometers (190 miles) of 42-inch diameter pipeline, officially titled the North Central Corridor, across Alberta from an inlet near the province's western border with British Columbia to an eastern outlet in the heart of the oilsands region.

The C$923-million (US$775 million) project's schedule calls for deliveries to start by fall 2010. The line's initial capacity is forecast to be 1.3-1.5 Bcf/d. The jumbo pipeline diameter will enable speedy increases in deliveries in the future with low-cost additions of compressors. Although the line is the biggest addition to Alberta's TransCanada-Nova gathering grid in memory, the approval was granted with no announcements by the agency, the pipeline company or the other industry interests involved.

No official explanation was provided, but the silent treatment was no surprise to veterans of the oil and gas scene. The commission issued its ruling at the tail end of the last working day of Canada's Oct. 14 federal election campaign. The decision had the potential to set off a political storm because the project stood out as a target for national environmental protests during its application and regulatory review stages. Oilsands development was one of the hottest topics of the Canadian election until the international credit crisis and plunging stock values in Toronto fed fear of recession late in the campaign.

Critics decried the new northern Alberta gas line as a diversion of massive quantities of the cleanest fossil fuel to increase production of one of the dirtiest, as measured by greenhouse-gas carbon emissions. Protesting environmentalists pointed out that unless regulatory authorities halt such projects in the name of conservation, natural gas use by growing thermal oil sands operations will soon exceed all the new production of 1.2 Bcf/d scheduled for delivery by the proposed Mackenzie Gas Project.

Despite efficiency improvements, thermal bitumen extraction and upgrading operations continue to use about 1,000 cubic feet of gas per barrel of oil produced, and sometimes more. In effect, oil sands output consumes one-sixth or more of its energy value. Greenhouse-gas emissions are as a result much greater than production of conventional liquid oil reserves.

Evidence before the AUC in the North Corridor pipeline case confirmed that oilsands account for about four-fifths of gas use in the northeastern and east-central Alberta area the project will serve. The line's outlet will be located at a Nova grid junction enabling increased deliveries to northern bitumen extraction operations and growing synthetic oil upgrader plants near the provincial capital of Edmonton

Projections of gas consumption by oilsands operations vary, except to agree that plant construction now approved and under way will make the total nudge 2 Bcf/d within a few years. The outlook depends on forecasts of oil prices and plant construction costs made increasingly difficult by the current economic meltdown. Also making the outlook murky for Canadian industry forecasters are political imponderables -- and not least, whether environmentalists in California and other U.S. jurisdictions will persuade state and federal authorities to restrict imports into the United States of oilsands production as causing growth of global greenhouse-gas emissions.

Green critics largely stayed away from the highly technical, formal AUC proceeding on the Alberta pipeline. Industry evidence before the commission said the oilsands region faces growing gas shortages unless the connection is built. On peak demand days in the region's frequent and severe cold snaps, shortfalls are forecast to hit 110 MMcf/d in winter 2009-2010 then jump to 460 MMcf/d in 2010-2011 if the North Corridor line is not built.

TransCanada-Nova assured the Alberta commission that the new oil sands pipeline does not require northern gas from the delayed, increasingly uncertain Mackenzie project. Supplies are strong and expected to grow at an accelerating rate in northern BC along pipelines that can feed into the new oil sands line's western inlet, the AUC was told.

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