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TransCanada Corporation (NYSE:TRP)

August 01, 2013 11:30 am ET

Executives

James Miller

Russell K. Girling - Chief Executive Officer, President and Director

Alexander J. Pourbaix - President of Energy and Oil Pipelines

Philippe Cannon

John Van der Put

Operator

[French] Good morning, ladies and gentlemen. Welcome to the TransCanada Corporation Energy East Pipeline announcement conference call. [Operator Instructions] I'd now like to turn the meeting over to Mr. James Miller. [French] Please ahead, Mr. Miller.

James Miller

Thanks, operator. And as the operator mentioned, I'm James Miller, I'm responsible for communications for the company. Thanks very much for those of you in the room. Thanks, all, to those on the phone as well.

We're pleased to announce TransCanada's Energy East project this morning. A news release was issued earlier this morning. It has lots of the details of the project, but if you indeed further information, you can go on to our website at energyeastpipeline.com. With me today are Russ Girling, TransCanada's President and Chief Executive Officer; and Alex Pourbaix, TransCanada's President of Energy and Oil Pipelines. Also with us on the phone in Montréal are Philippe Cannon and John Van der Put. They are with the Energy East project team. Both Philippe and John are available to answer questions in French. They will also be available after the call for further interviews in Montréal. Philippe will manage any media request in French during this teleconference, so please direct your questions to Philippe. He'll ensure that the questions and responses are repeated in both French and English for the benefit of you folks here in the room.

Today's call, we anticipate it will run until about 10:30. We'll start with Russ and Alex making some brief comments and then I'll turn it over to the media in the room here first, and then we'll go to questions on the phone line.

I'm looking over at the queue and there's going to be quite a few people on the call so I would ask if everyone can respect their colleagues in the room and on the phone and limit yourself to one question. If we have time, I'll come back to the room and we'll go from there.

So I'll start with our remarks and I'll turn it over to our President and CEO, Russ Girling. Russ?

Russell K. Girling

Thank you, James and good morning, everyone, and thank you very much for joining us here today. [French] This is a historic day for TransCanada and a historic day for our country. We greatly appreciate the interest in TransCanada's news project. The proposed conversion of a proportion of our Canadian Mainline from natural gas service to crude oil transportation service. We're trying to call that project, as you've seen, Energy East or Energy East. Canada has a long tradition of forging important nation-building, east-west highs across this country. Like the Canadian Pacific Railway, the Trans Canada Highway, and our own TransCanada Mainline, this infrastructure was built to support the east-west trade of goods across our country, support economic development and promote national security. These both ventures were all tied to interprovincial commerce and to the idea the Canadians across the country should share in the benefits of developing our nation's resources. Each of these enterprises demanded innovative thinking and a strong belief that building critical infrastructure ties our country together, making us stronger and more in control of our own destiny. This is true with Energy East. This is our newest and single largest capital project this company has ever undertaken. And today, we have exciting news about where we are with bringing that vision into reality. The commercial open season for Energy East, which is just the term the industry uses for request for interest in the pipeline, closed on June 17, and we've spent the last number of weeks undergoing a thorough detail review process to understand the volumes that people required, the receipt points that they wanted and the delivery points that they wanted in the marketplace. We are pleased with the outcome of that open season, obviously, which confirms strong support for our pipeline to transport crude oil from Western Canada to receipt points in -- from receipt points in Alberta and Saskatchewan, to refineries in Montréal, Québec City and Saint John, and to 2 export terminals, one in Québec City -- or one Québec, and one in New Brunswick.

Interest in the open season exceeded our initial design capacity of 850,000 barrels a day. As a result, we have modified our design to accommodate more than 1.1 million barrels a day of oil movement rate from Alberta through to Saint John. This new $1.1 million barrel a day pipeline will be underpinned by more than 900,000 barrels a day affirm 20-year shipping commitments with both domestic producers, Canadian refiners and international markets.

This response confirms the overwhelming industry support for innovative solutions to move crude oil to markets in Eastern Canada and elsewhere in the safest, most efficient means possible, which is in a pipeline.

It also underscores the Eastern Canadian refiners' desire to have access to stable and less expensive supply from Western Canada. This project has the potential to replace all of the oil Canadian refineries currently have to import from overseas to make gasoline and diesel and other fuels that are vital to the lives of Canadians.

TransCanada will proceed with the necessary regulatory applications for the approvals to construct and operate the Energy East Pipeline system, and with the potential in-service date of late 2017 for deliveries into Québec, and 2018 for deliveries into New Brunswick. In addition, Energy East will give new purpose to the unrealized capacity of our gas mainline, making it more competitive and attractive to our natural gas customers. Let me say that we are committed to maximizing the utilization and benefits of our infrastructure for all customers, both gas and oil, and we are committed to ensuring sufficient capacity is available to meet all of their growing needs.

This $12 billion project will create thousands of jobs across our country and bring new revenues and business opportunities to local communities. They will provide lower cost source of energy for Eastern Canada, and reduce our dependence on foreign oil. We will achieve all of this safely and with minimal environmental impacts and with all private sector funds.

But I'd like to make it perfectly clear that the demand for Energy East is completely independent from our other outstanding long-haul pipeline project, the Keystone XL Pipeline, which is underpinned by its own 20-year contracts with Canadian and U.S. production companies, as well as U.S. refineries. Those shippers remain committed through that project and bring it in on time. Both of these pipelines have their own rationale in the marketplace and both are needed to keep pace with the growing crude oil production, in both Western Canada and in the U.S. In the case of Keystone XL, the refineries in the Gulf Coast want to access more reliable and less expensive supply of heavy oil from Canada and growing supplies from U.S. domestic crude producers, replacing oil in the United States that is currently imported from Venezuela, Mexico, West Africa and the Middle East.

In the case of Energy East, Eastern Canadian refineries are interested in accessing growing supplies of light oil, as well as some heavy crude, instead of continuing to import more than 700,000 barrels a day from overseas sources.

And of course, Canadian production companies are very interested in accessing tide water in order to reach international markets, including the U.S. Eastern Seaboard, which, by the way, imports over 800,000 barrels a day, Europe, Asia, and India. And for those of you who don't know, India is actually closer from a shipping distance perspective to the East Coast of Canada than it is to the West Coast of Canada.

There's been enormous interest in the Energy East project since we first floated it more than a year ago. And I think the big reason for that is because it makes a lot of sense to Canadians.

There are many people to thank in getting us to this point in the project, and we know there is much more consultation and work to occur in the future, and Alex will talk about that in just a moment. But I'd like to acknowledge the efforts of Federal Energy Minister -- Federal Natural Resources Minister, Joe Oliver; Alberta Premier, Alison Redford; and New Brunswick's Premier, David Alward, for proactively challenging our industry to find better and more economic, more efficient and safer ways to meet our collective energy needs. So thank you, again, for supporting our project and for your continued interest in this very important initiative for all Canadians.

James Miller

Thanks, Russ. And I'll turn it over to our President of Energy and Oil Pipeline, Alex Pourbaix, for some remarks. Alex?

Alexander J. Pourbaix

Thanks, James, and thanks for everybody for coming today. As you've heard, this project involves converting a portion of the Canadian Mainline from natural gas to crude oil service. This is an innovative solution that allows TransCanada to meet the needs of Canada's energy industry today, while making better use of the significant infrastructure we already have in place between Alberta and Québec. It's important to note that we've actually already done -- have done this before when we converted one of our mainline pipes to oil service between Alberta and Winnipeg for our existing Keystone Pipeline. Subject to regulatory approval, we are now planning to convert about 3,000 kilometers of additional mainline pipe between Burstall, Saskatchewan and Cornwall, Ontario, from natural gas to crude oil service and build approximately 1,400 kilometers of new pipe in Alberta, Saskatchewan, Manitoba, Ontario, Québec and New Brunswick, in order to access Saint John, New Brunswick. Once completed, the Energy East Pipeline will have the capacity to move more than 1 million barrels of crude from our terminal at Hardisty, Alberta and a terminal to be built in Southeast Saskatchewan to Eastern Canadian markets each day.

Right now, the refineries we will assess in Québec and New Brunswick must rely on foreign imports for 86% of their feedstock, that's 700,000 barrels a day. Most of that oil comes from Saudi Arabia, Nigeria and Libya. Foreign oil typically costs about $30 to $40 more per barrel than domestic crude and is produced in countries that lack the strong environmental regulation that we have here in Canada. We can change that, we will change that and the entire country is going to benefit. The Energy East Pipeline could eliminate Eastern Canadian refineries' reliance on crude oil imported from overseas and ensure Canadians receive greater value for their domestically-produced oil by competing directly with more expensive imported crude that is trading on the world market.

Let me tell you how. First, this $12 billion project will create thousands of new well-paying jobs and promote economic growth across Canada. There's going to be jobs for welders, dockworkers, technicians, backhoe operators and many others. Businesses, both existing and new, are going to benefit. Local hotels will house our construction crews, local restaurants will feed them, our crews will buy supply and equipment from local lumber yards and local machine shops. They're going to be filling their trucks at local pumps. Professional consulting firms, engineers, landscape architects, archaeologists and others will bid for and win contracts for specialized services that we need for this project. Entrepreneurs of all sorts are going to have opportunities to shine. Young people and those who are underemployed will have the opportunity to train with us and our contractors for better careers. As the pipeline becomes operational, local refineries will need to hire more personnel to keep pace with increased production.

Communities, large and small, aboriginal and non-aboriginal, are going to gain from this project, both in terms of jobs and increased spending and also through increased property tax revenues over the life of the pipeline. In short, there's going to be lots of work and economic benefits to go around. A moment ago, I mentioned aboriginal communities. And just to put that in perspective, there are some 150 personation in Métis communities along the proposed pipeline route. TransCanada fully respects their legal and constitutional rights. Their residents, like all of our estimated 100,000 stakeholders on this project, will be consulted extensively about their concerns and their insights into local conditions and local circumstances. This lengthy and comprehensive effort will include the collection and use of traditional knowledge. We truly want their input. In fact, over the past several weeks, we've been out in the field collecting data and engaging with aboriginal and stakeholder groups and I have no hesitation whatsoever in saying that their advice will help us select the best possible route for this pipeline.

I think I can safely say that environmental concerns are going to top the list of priorities for many of our stakeholders. I am just as confident that the Energy East Project will soon become known as a model of environmental responsibility within the energy sector. And why do I say that? First, 70% of the needed pipe for this project is already in the ground. It does not need to be dug up for this conversion to occur, and this fact alone greatly reduces the environmental and community impacts of the project. Second, TransCanada intends to parallel existing rights of way. We're using existing infrastructure in parallelling, existing rights of way will result in much less environmental and community disturbance than building an entire new pipeline. Third, many of the new pumping stations are going to be installed at existing gas compressor station sites. This confines the environmental impact to small existing sites. Much more, these pumps are going to be powered by electricity, which means they will both be very quiet and will have no direct air emissions. Fourth, pipelines continues to be the safest and most efficient way to transport oil. TransCanada's hi-tech control center monitors every inch of this pipeline, 24 hours a day, 365 days a year. And in the unlikely event of a spill, our highly-trained pipeline controllers can use remote control valves to stop the flow of oil in the pipeline within minutes. And just to put this in perspective, last year alone, TransCanada invested approximately $1 billion in pipeline safety and integrity measures. And for this year, we intend to spend even more. In other words, when it comes to safety in the environment, Energy East is, by far, the most responsible solution to Canada's current and future energy needs. Obviously, we have a great deal of work to do over the next several years. And now, I am pleased to tell you that we are in a position to move forward with this project in earnest. I would also like to echo Russ' thanks to the government leaders who have been working hard to build support for Energy East across this country, and I would also like to extend a particular thanks to Arthur Irving and Irving Oil, particularly for their hard work and leadership in convincing stakeholders of the merits and wisdom of extending the project to Saint John. Thanks, everyone.

James Miller

Thanks, Alex. Thanks, Russ. We'll open it up, as I said, Q&A, in the room first. My colleague, Carlo Lamanos [ph], has a mic because we want people on the phone and our colleagues in Montréal to hear your question as well. [Operator Instructions] And just for Russ and Alex's benefit, if you could identify yourself and your outlet, that would be great.

Question-and-Answer Session

James Miller

So we'll start with this gentleman right here.

Unknown Attendee

My name is Neil Erland [ph], I'm with BBC Television News. My question is for Russ. I'm curious, what drove the delays in the Keystone project [indiscernible] in [indiscernible] to this one?

Russell K. Girling

That the Keystone process, as I said, is an independent process that really has nothing to do with this project. It's -- Keystone XL is underpinned by 20-year contracts with producers and refiners in the Gulf Coast. That's destined to move Canadian heavy oil, to displace 4 million barrels a day of imported oil in the Gulf coast. But what we know in North America is that production is continuing to grow. Were forecast from -- Canadian Association of Petroleum Producers forecast about 6 million barrels a day in Canada alone. After that, 1 million to 3 million barrels a day of growth in Bakken crude. We need to find numerous outlets or numerous transportation options to move that through the market. So the marketplace needs both of these pipelines and probably more as we move forward.

James Miller

Do we have a mic we can use? No. Yes? Debra, go ahead. We'll fix this up.

Unknown Attendee

[indiscernible]. I have a question about the regulatory approval. Pauline Marois, the Premier of Québec, has already sent to you the details of the project going forward. What kind of challenges do have with the pay in terms of the approval [indiscernible] for Québec?

Russell K. Girling

Well, I think it's a -- this is a similar project to what we've done in the past. We have built pipelines in Québec, and we built other facilities in Québec. We have a large wind farm in Québec, we have a large gas-fired generation facility in Québec. We have cited LNG facilities in Québec. So I think we're very familiar with the Québec environmental and regulatory review process. We'll be working with sort of both levels of government to determine what rules they each want to play in the review process. And once that's set up, then we'll move through that in the normal course. A lot of those decisions haven't been made yet and there's sort of a big discussion going on between the provincial environmental authorities and regulatory authorities and the federal authorities. And as well, in some of the other provinces as well. So we're going to take a deep look at. We're going to make sure that we set up a process where everybody will have an opportunity to have input and be part of the process. And right now, seeing what we've been in -- through in the past in the Mackenzie Valley pipeline, we're moving through a regulatory process in British Columbia that has some involvement of both federal and provincial regulators. This isn't going to anything different than that. And I think we can take those experiences and craft a process that will ensure that everybody's heard but we'll be efficient. Those are our goals.

Unknown Attendee

James [indiscernible] with Business News Network. A lot of people are hoping that there will be an announcement like this as part of your second quarter earnings release that was just 5 days ago, so obviously, that didn't happen. There's a bit of disappointment there among the shareholders and analysts. So what happened in the last 5 days?

Russell K. Girling

I guess, we never told anybody that we were going to announce this project on a specific date. We closed the open season on June 17. Normally, that process to close all of those, if you can imagine, 900,000 barrels a day of contract. I mean, we're talking about billions and billions of dollars of commitments, along with joint venture agreements on terminal, rand access. And what we've always said is we never -- we will never announce a project before it's ready to be announced. And until we have all of those contracts signed, we weren't about to announce a project. The market speculated on when we might announce it but that process takes a lot of time so there's no connection to our quarterly earnings. That's -- quarterly earnings calls are for quarterly earnings, we'll make announcements on projects when the time is right to make those announcements.

Unknown Attendee

Gabe Robertson [ph], Global Television. Mr. Girling, will any of this oil be available for export, a. And b, with the recent diminishing of the spread in oil prices, what's it going to do at the bitumen level?

Russell K. Girling

Well, I think it's, obviously, from a producer standpoint, they want to have access to tidewater and access to international markets. That's the primary driver of this project has been to supply Canadian refineries, as Alex pointed out, 700,000 barrels a day is imported today. Will they be able to capture 100% of that market? Not sure. That will be up to the marketplace to determine. But we have -- been requested to have facilities port facilities, both in Québec and at a Saint John. That gives them access to, as I said, the U.S. Eastern Seaboard. The primary supply to the Eastern Seaboard currently is offshore oil, which is Brent-based priced. They can get access to WTI prices or Western Canadian prices via accessing our pipeline. Basically, you can go through the pipe, onto a tanker and get to the Eastern Seaboard of the United States. And also, get to the Gulf Coast of the United States. As we pointed, we can get to Europe, we can get to India, and we can get to Asia. I mean, it's a bit farther off the East Coast and West Coast to get Asia, but it can be competitive in certain circumstances. So I think those are very much attractive attributes of this project, both for its domestic markets, North American markets and then, I think, international markets. I think that will be the order that our shippers would put on those priorities.

Unknown Attendee

I'm Sandra Daniel [ph] with CBC Television, French Television. So just to go on, on your idea, you're saying that domestic market is your first priority. But how do you make sure if you can sell your oil to international market and you can make more money with that? How do you make sure that Canadian benefits first?

Russell K. Girling

Well, I think that the marketplace will take care of that. First of all, we're just a transporter, we connect producers and refiners. So those refiners, some of them have taken shipping agreements on our pipeline, which give them sort of a direct link back to Western Canada, which means that they'll fill their refineries first with oils from Western Canada because they own a shipping position. In addition, obviously, if you want to compete with foreign-based oils coming into Canada, you'll have to bid a price, which is less than Western Canadian producers are willing to supply those refineries at. It's hard to imagine that we'd be loading ships to leave the harbor and have ships coming into the harbor at the same time and have sort of bidirectional traffic. Traders will figure out that that's expensive and anything else [ph] should stay at home first and don't incur the transportation cost. So I guess, there are 2 things that I would say would drive my belief that Canada will be served first, do this first. The shipping contracts that attach production in refinery. And secondly, just simple way of economics of not having to pay transportation cost of putting the oil in the water if you don't have to. So I do strongly believe that Canada will be served first in all circumstances.

Jeffrey Jones

Jeff Jones with the Global and Mail. Two related questions. First of all, with this project and the proposed line 9 reversal, is there any risk at all of an overbill to pipeline capacity to the Eastern Canada? And then related to that, have any of the refiners that are in that region express to you the possibility of expanding the facility should this project go through?

Russell K. Girling

I don't think an -- there's not going to be excess capacity, if you will. I think what we found in markets is having sufficient capacity in excess of your daily demands is positive for both production companies and refiners. So with these 2 pipelines, as we said, that there's likely to be some export opportunity for Canada. I think that will be a positive thing on a go-forward basis as Canadian demands grows. And those refiners have the potential for expansion. We can fill those refineries. If we have any disruptions in the system, whether it be from one pipeline or the other, you have alternative backup, so I think redundancy is also a very important factor for these refiners. So I wouldn't call it excess capacity. And the global demand for crude oil is expected to grow 10 million, 20 million, 30 million barrels a day in the coming years. Canada is well positioned to participate in that global demand growth. And I think having the opportunity to have that export terminals will allow for space. So I don't foresee a period of time when any of these pipelines will have what I call excess capacity in them. I think they'll be fully utilized. I think the evidence of that is the underpinning of the long-term contracts. We have more than 900,000 barrels a day of long-term contract. They said that they want to access Canadian and international markets. So I think they'll be fully utilized. I don't -- can't really speak to the line 9 reversal and its underpinning, but I suspect it's somewhat the same. With respect to conversations on potential for expansion, the answer is yes. I mean, all of these refiners are interested first in the supply, the security of supply, the cost of that supply, which makes their existing operations from what we've been told, more viable, potentially, for the long haul, securing those jobs, I think, for a longer period of time. And allow a real opportunity, potentially, expand -- add different products, which will allow them to export into other market, including U.S. markets and European markets. So it provides them an opportunity whether the economics will actually be there for them to expand. I mean, that's yet to be written down the road. What this is, is it provides them with the option and opportunity to be able to do that.

James Miller

Laurie?

Lauren Krugel

Lauren Krugel with the Canadian Press. Just wondering whether any refiners in India, Europe, any of those offshore locations would have been participating in the Energy East open season process?

Russell K. Girling

The answer is yes. We've have interest from a number of international parties in the open season process.

James Miller

Mr. Hegit? [ph]

Unknown Analyst

This Greg Hegit [ph] from Reuters. Can you break down the capital budget for me? How much of it is a transfer to natural gas lines? How much is import, how much is in new pipe?

Russell K. Girling

Not at this point in time. We'll be in a position to make a regulatory application at the end of the year, but we've got to work through those things. I think what we said is that, excluding the mainline transfer, it's about $12 billion of cost. The bulk of it will be in the new build portion. So we'll see the bulk of the spend being in Alberta, where we've got to add new pipe from Hardisty to the Alberta-Saskatchewan border. And then through Québec, there'll be a large spend in Québec and there'll be a large spend in New Brunswick. But in terms of the breakdown, I'd be hesitant to break that down till we get sort of full year through our review process. Figure out where our delivery points are going to be, where our pump station are going to be. And I would say that it -- we'll able to announce that somewhere around the end of the year when we make our filing with the National Energy Board.

James Miller

Francis?

Unknown Attendee

Francis [indiscernible], Global Nation [ph]. Alex, you mentioned that 70% of the pipeline won't even have to be disturbed for this conversion to take place. I just -- can you -- it might be really complicated, but could you simplify, how does that conversion take place going from a gas pipeline to a crude pipeline?

Alexander J. Pourbaix

Sure. No, that's a good question. I think the first thing that's helpful to think about this is gas pipelines move natural gas, which is compressible, and the mode of force for moving the gas are compressors. Gas -- typically gas-fired, sometimes electric-fired compressors. Oil is an incompressible liquid. So instead of using compressors, we're not able to use that equipment and we have to put in electric pumps to pump the oil. And so what we have to do, we're going to have somewhere in the range sort of, 68, 70 pump stations that we have to build. As I said in my remarks, wherever possible, we're going to build those pump stations on the existing compressor station footprint to minimize our environmental impact. And then on either side of that, as Russ has mentioned, we have new build on the Alberta portion, and then a new build kind of from Eastern Ontario through to Saint John.

Unknown Attendee

So basically, the pipe remains the same, it's just the way you push it to?

Alexander J. Pourbaix

Yes. And one of the benefits when you do one of these conversions, the pipes that we're contemplating converting have been in service, really, over the last sort of 20 or 30 years. Some of the pipes are even newer. And throughout that period of time, it's been regulated by the National Energy Board, which will be the regulatory agency that continues to regulate the oil pipeline. So they have exhaustive information as to the condition and integrity of that pipe. We will likely, at certain locations along the pipe, do digs, just to do confirmatory digs to ensure that the pipe is actually in the condition that it was understood to be in. So there will be a process of doing that, but it is a fact that the vast majority of that distance, we don't have to dig up the pipe, we just have to change the mode of force to move the product through the pipe.

James Miller

Go ahead.

Unknown Attendee

Stephanie for Harvard Canada [ph]. I'm just wondering, is the pipeline the same for -- to transport crude oil and natural gas? And if it's not, how do you make sure that for safety reasons there?

Alexander J. Pourbaix

In terms of the makeup of the pipe?

Unknown Attendee

Yes.

Alexander J. Pourbaix

Yes. The pipe itself is -- it is of a type and quality and thickness of steel. It is entirely appropriate, both for transportation of gas and for oil. And as I've said, part of the regulatory process we will go through is to do a bunch of confirmatory work to ensure that the pipeline is, in every case, of the level of integrity that we understand it to be.

James Miller

Okay. So thanks to the journalists in the room. As I said, if we have time, we'll come back if you have any follow-ups. But that concludes our portion here in Calgary. Operator, if we can queue up the media on the phone lines, then we will take some questions through the phone, please.

Operator

[Operator Instructions] [French] [indiscernible], please go ahead.

[French] Philippe Cannon [French] For the benefit of the people in Calgary, [indiscernible] from La Tuque [ph] Canada in Québec City, wants to have details on the installations in Québec on the Marine terminal. And questions on the root of the pipeline. [French] So for the people in Calgary, I basically answered that we were going to have new build from Cornwall to Saint John, that the final route of the pipeline is not known yet. We will be holding open houses in different communities. And as far as the Marine Terminal is concerned, I'm informed and I'm aware that we're still looking at different opportunities, different sites. And that we will get back to her when we'd have more information on that. [French]

Operator

[French]

Unknown Attendee

[French]

Philippe Cannon

[French] Essentially, what she is asking is -- well, she is saying that she saw Minister Oliver's positive reaction earlier today, and Premier Redford's reaction, also. And she's wondering how the Québec government is reacting to the proposed project. [French] I informed her that we view government as important stakeholders, that we were happy to see support on this project. And as far as the government of Québec is concerned, we have been discussing with the government and have been trying to find the best way for the people in Québec and the government to move this project. [French]

James Miller

Operator, our CEO would just like to supplement that answer, please. Go ahead, Russ.

Russell K. Girling

I think with respect to the last 2 questions, I just want to, I guess, reiterate TransCanada is at the point of opening up discussions at all levels of stakeholders, all levels of government. Our priority is to listen and to understand. What we're bringing to Québec and into other provinces across the country is an economic opportunity for investments, for jobs development and for energy security. But we recognize that there are also concerns and we need to listen to those concerns. With respect to citing of both the pipe and the terminal, those conversations and that input will have significant influence on where we actually put things. My understanding is that folks along the pipeline, at all levels of government, understand the economic benefits, but what they truly want to understand at this point in time is what the environmental impacts are going to be in. And those conversations have begun, and they'll continue. As I said, from what we've been able to tell across the country, including Québec, is that folks are open to having a conversation and are interested in how we can bring this economic opportunity to reality, in a way that meets the environmental and social needs of the people across the country.

James Miller

Thanks, Russ. Operator, I'll turn it over back to you for questions from the phone, please.

Operator

Our next question is from Mike Leeson [ph] of Bloomberg News. [French]

Unknown Analyst

Can you talk a little bit about the cost? There is analysts' notes out that says it's as much as twice as some of their previous estimates. What drove the cost up and is the high cost a concern for you?

Russell K. Girling

The original scope of the project, when we first started talking about it, was a pipeline, of about 500,000 barrels a day, from Alberta to Québec. The scope of that project has grown substantially, now to a project that includes deliveries into Québec City, as well all the way into Saint John. As well, we've increased the size from that original estimate of 500,000 barrels a day to the number that we mentioned today, at 1.1 million barrels a day. So I think that the costs are in line with a cost of a project of this size, and it translates into a toll. It's very economic for both refiners and producers. And it's far lower than the alternative means of transporting this crude oil to the refineries which, today, is either by tanker through the St. Lawrence from overseas, as I said, or via rail coming out of Western Canada or out of the United States to those refineries. So we spent a number of years here sort of understanding what the economics for building this thing. As Alex said, we spent a lot of time in understanding the integrity of the pipe to convert. And that all translated into the substantial shipping position that we have now announced, that producers and refiners have signed up for, which I think underscores the economics of this for the industry and for the marketplace. And as I said, the $12 billion, is a big number by any standard, but it translates into a toll that over the next 20, 30, 40, 50 years is going to be very attractive for people across this country.

Operator

Our next question is from and must from Adam Huras from New Brunswick Telegraph-Journal. [French]

Adam Huras

You talked about this -- creating thousands of jobs. I was hoping for some specific numbers or at least some more specific numbers in terms of what that means in terms of jobs for New Brunswick? As well, I'd like to know of the $12 billion estimate, how much -- how big a dollar figure is that to create the pipeline and the terminal for New Brunswick.

Russell K. Girling

We haven't announced specific numbers on either the jobs front or capital spend in each of those regions, that will come. And we're not trying to hide anything, we're just trying to nail down the number so that we make sure that when we announce them, that they'll be accurate. I can tell you that the spend in both Québec and New Brunswick, as I said, the bulk of the dollars that are going to be spent there in terms of new construction will be in the billions, and the jobs will be in the thousands in terms of construction jobs that will come along. In addition, it will bring along significant tax revenues for all of the communities that the pipeline traverses. There will be ancillary benefits like building up of the electric grid to supply the power, to supply the energy needed for 65 to 70 pumps that Alex had mentioned. Those numbers are very significant in terms of new load and new opportunity for folks like New Brunswick power providers and for the Québec power providers. So the economic benefits will be large, but what we want to do is make sure that we have a good handle on quantifying those before we roll them out. But that will come in due time, but the numbers will be substantial.

Operator

Our next question is from Ben Dummett from the Wall Street Journal.

Ben Dummett

I'm just wondering, do any of the provinces, through which the pipeline will pass, have the ability to block the final approval of the project? And other than Alberta and the -- the premiers of Alberta and New Brunswick, have any of the other premiers of the other provinces where the pipeline can't go through, have they publicly endorsed the project?

Russell K. Girling

I think, on your last question, I would wait to see what the premiers across this country have to say about the project, and that's not for me to comment on. But with respect to the regulatory process, this will be a federal undertaking for -- its primary regulator will be the National Energy Board. That's not to say that both provincial and federal departments, from fisheries to environments, won't participate in the project. They will. Or in -- they won't participate in the review -- they will participate in the review. And we're working on what that process would look like at the current time. Obviously, we wanted to be efficient and get through in a timely manner. But at the same time, we want to make sure that we don't exclude anybody that wants to participate and has a legitimate say in the process. The -- in terms of veto right, I think that's premature to say who's got the ultimate authority here. I think what we're trying to suggest is that we have a project within the interest of all Canadians and in the interest of all the provinces, and that we need to work with all of those parties to ensure that we satisfy their concerns, and we're committed to doing that.

Operator

Our next question is from Shawn McCarthy from The Globe and Mail.

Shawn McCarthy

Can you address the issue of taking natural gas capacity out of the system? And I understand that there is overcapacity across the priorities, but I also have been told that the Ontario system is pretty much full now and there is concern about the loss of capacity in Ontario and even into Québec.

Russell K. Girling

We are currently in the process of understanding what that need is. Today, we have sufficient capacity to meet all of the contractual needs that we have on our gas pipeline system, right from Western Canada through to the marketplace. We believe that we have the capacity to meet all of our contractual needs, post conversion to oil. That said, there may be other needs beyond our contractual commitments that we have today. To meet -- gas consumers needs mean the demand for natural gas in Eastern Canada is increasing and there may be need. What we're talking to our gas customers about currently is what that need is. And what we've said to them is we will ensure that we have the capacity available to meet their needs. We have a very complex and large and robust natural gas delivery system in the eastern part of the country. It's not a single pipeline, it's a series of many pipelines that serve many different needs. As the gas dynamics change and we see a movement to shorter hall movements coming out of the U.S. For example, to import into Eastern Canada, we have to modify our system to meet that changing gas dynamic. And what we've committed to our shippers is that we will meet those needs, and that conversation is going on. But I want to make it perfectly clear that we're in a business of providing transportation service to move hydrocarbons from supply location to market. And we'll be -- continue to be competitive in doing that. And we'll work with all of our customers, as we always have, to do it in the best and most efficient way possible.

Operator

Our next question is from Jeff Lewis from Financial Post.

Jeff Lewis

A related question. Can you talk about how the increased scope of this project, from 850,000 to 1.1 million, will impact the overall rate base that determines those gas holes?

Russell K. Girling

The transfer of the main line gas facilities to oil really isn't impacted by the upsizing of the project, if you will. I guess we had some conversations internally as to which one of those several lines I referred to we would transfer over to the oil system. We've always contemplated that it would be a 42-inch line, right from Alberta through to Montréal. And so the post -- the upsizing of this project, that continues to be our view, is that it will be that same 42-inch pipeline that we've been talking about for some time. So the changing capital estimate really doesn't impact the dollar volume of the transfer between gas service and oil service.

Jeff Lewis

In terms of the rate base though, will that change by actually switching it to oil?

Russell K. Girling

Yes. I guess it will, but I guess, maybe I parsed the question too closely, is that the -- our gas shippers will benefit by the reduction in the rate base that results from the transfer of that 42-inch line from gas service to oil service. I guess what I was saying is that the -- is the changing capital estimate doesn't change the amount of reduction in rate base, nor the benefit that's conferred upon the gas shippers as a result of that transfer.

Jeff Lewis

Is there a dollar figure you have right now. In terms of the shift?

James Miller

Jeff, we need to move to another person, you've had a couple. Thank you.

Operator

Our next question is from [indiscernible].

Unknown Attendee

I'd -- I'm sorry to ask -- bring you on a more sensitive issue, but I have to ask you what you feel will be the impact of the Lac-Mégantic tragedy on the discussion around this project? And maybe more broadly, how this tragedy would either build the case for using pipelines rather than rail to carry oil?

Russell K. Girling

Well I think as I've said before, the Lac-Mégantic incident is a tragic event that shakes us all in the oil business, in the transportation business. The impact on this review, I think, obviously, is that public awareness has increased. This kind of event should not occur. And as transporters, we have to do everything we possibly can to ensure that they don't happen in the future. So in terms of the discussion, whether it's rial, whether it's oil pipeline, it really doesn't matter, in my view. What we have to do is understand why these events occur and ensure that we put the safeguards in place to make sure that they don't occur ever, ever again.

Operator

[French] Please go ahead.

Unknown Attendee

[French]

Philippe Cannon

[French] What Monsieur [indiscernible] is asking me, he said that he saw a declaration made by the Gulf Oil president that said that all prices would drop 50%. That could almost happen with -- by the end of this year. And he's asked if this impacts, in any way, the project. [French] What I informed Monsieur [indiscernible] is that this project is underpinned by long-term 20-year contracts, that the -- that its oil is a commodity, its price may vary, but the important thing is that we're looking at long-term contracts in this. And that there is a strong will in front of the scope of the project where we're in and we're talking about today. That everybody is confident for the future and there's a strong will to bring an economic benefit to all Canadians in this.

Russell K. Girling

Operator, we'll supplement that in Calgary with Alex Pourbaix, please.

Alexander J. Pourbaix

I guess the only thing I would add on that is that despite the discussion that goes on in the public about sort of the need or the opportunity to replace oil with renewables, the fact of the matter is that global demand for oil is expected to do nothing but increase, something in the range of 40% to 50% in the coming decade. So certainly there, you always see variations in this commodity, the price goes up and down, but I think under just about any scenario we look at, we see a price for oil that would make the movement of -- the development of the oil -- continued development and production of the oil sands and the usefulness of this pipeline continue for decades to come.

James Miller

Thanks, Alex. Operator, back to you, please.

Operator

[French] Our next question is from Tory Gally [ph] from CBC.

Unknown Attendee

I'm calling from CBC Saskatchewan. I'm just wondering if you can run through the details about how exactly this affects things in Saskatchewan where about things will be changing. And as well you mentioned terminals to be built in Southeast Saskatchewan, can you say specifically where and also when we'll start seeing that?

Russell K. Girling

We -- you are correct, we are going to build a terminal in Southeast Saskatchewan. Much as Russ said, we're going to bring more of the details out as we get better information. But we're certainly -- we're going to build a terminal in Southeast Saskatchewan and significant storage capability, and the purpose of that will be to accommodate shippers that want to bring light sweet Bakken production online onto our pipeline for delivery to Eastern Canadian markets. And then there will, once again, be a relatively significant investment associated with that.

James Miller

Operator, I would just like to ask John Van der Put in Montreal if he'd like to supplement. John?

John Van der Put

Yes, John Van der Put here. The only thing I can add is that there will be pump stations in Saskatchewan. There will be the conversion of the pipe as well, in addition to the terminals. So all of those construction activities will account for significant economic benefits to the province of Saskatchewan.

Unknown Attendee

And I did have a look at the map. And to my understanding, it's just in the southeast where there will be pipe conversion, is that right?

John Van der Put

No. The pipe will be converted all the way across the province of Saskatchewan.

Unknown Attendee

Oh, okay, so there will be digging and the existing pipe will be changed?

Russell K. Girling

No, no, no. The -- there is an existing gas pipe in the ground. The compressor stations will be replaced with pump stations, but the pipe will not be dug up, nor will -- there will be a little bit of new pipe constructed to connect oil production in the region. But in talking about the main 42-inch pipe, that will be in the ground and will not be dug up and replaced.

James Miller

Operator, back to you.

Operator

[French] Please go ahead.

Unknown Attendee

[French]

Russell K. Girling

[French]

John Van der Put

[French]

Unknown Attendee

[French]

John Van der Put

Right. [French]

Unknown Attendee

[French]

John Van der Put

[French]

James Miller

John, would you mind just briefly explaining the question and answer for the benefit of folks here in Calgary, please?

John Van der Put

Sure. The question was just -- the individual would just wanted to have us repeat the answer to the previous question with regards to infrastructure that would be built in, and then converted, in Saskatchewan and the investments associated with that. There was also then a follow-up question with regards to the quantity of oil that would be coming from the light sweet crude, as Mr. Alex Pourbaix indicated, it will be coming from the Bakken. What I indicated in response is that all of those quantities are subject to commercial agreements which are confidential and not at liberty to share that information.

James Miller

Thanks, John. Operator, back to you. We have 3 more on the phone lines, so now I'll bring it back to Calgary, we can close things down.

Operator

Our next question is from Elsie Ross from Daily Oil Bulletin.

Elsie Ross

I'm just not -- I'm -- that last question might have been answered in part, but can you roughly say what percentage would be heavy versus light, at all? If -- can you sort of indicate anything at all along those lines?

Russell K. Girling

At the crunch I made, it will be up to our shippers as to what they want to put into the pipeline. Our belief would be is it'd be primarily light, at least in initial stages. That refinery demand, for the most part, in the east is light oil. So I think we would be seeing light oil move -- upgraded oil moving from west to east. There is some need for heavies. In the Saint John refinery, for example, I think it's about 100,000 barrels a day of heavy that they can take. But that will be up to our shippers as to what the quality is. But as I said, it may change over time but, initially, we're thinking probably more light than heavy.

Elsie Ross

But can you say a percentage?

Russell K. Girling

Again, we're not the shipper, so that will be sorted out by them over the next couple of years. I mean, the actual start up shipping date is somewhere in late 2017 for Québec, and in the 2018 for Saint John. And it will depend upon market circumstances at that point in time. What the shippers have done is they've just essentially reserved capacity on the system and they haven't informed us as to what the quality of that crude is going to be at this point in time. We're just surmising that given the demand is primarily heavy -- I mean, light in Eastern Canada, that will be the primary driver. And then when you look at sort of the closest export market at the U.S. eastern seaboard, which is primarily a light market again, so we see those as being sort of the 2 closest markets for this project. And so that's what drives our conclusion at the current time.

James Miller

Thanks, Elsie. Operator?

Operator

Our next question is from Jeffrey Morgan from Alberta Oil Magazine.

Jeff Morgan

Mr. Girling, there was an announcement, probably a month ago, from a refinery union or a union of refinery workers in Québec saying that they were hesitant to support the project if it's carried oil to export markets. And I see that there's 2 export terminals at the plant, along with this. Can you describe how you're going to manage that, I guess, the relationships there?

Russell K. Girling

I think that there will always be those that are opposed to a project like this for one reason or another. I guess if you all believe that the development of Canada's resources is an important driver of economic prosperity for this country, something that can benefit all Canadians, I think you can see that over the next number of decades, Commerce Board of Canada [ph] is estimating the impact of sort of $2 trillion kind of numbers for the impact of the development of the resources in Canada. Canada has been endowed with this natural resource that the rest of the world needs. And there's an opportunity to export some of that. So I think that's the reason that's driving behind this project. And I think what we need to do is sit down with folks that are opposed for those kind of reasons and explain to them, at least from our perspective, why we think it's beneficial to economic development and job creation and long-term prosperity for this country. Those activities generate tax revenues that go to hospitals, schools, building roads. And generally, [indiscernible] our quality of life. So again, we will be getting into those details in the coming months as to how big those impacts are and where they're going to occur. But they do occur along a lot of those small communities along our pipeline route that aren't necessarily always touched by your major projects. This is an opportunity to touch several hundreds of small communities across this country. The restaurants that our construction workers eat in, the hotels that they stay in, the gas stations that they fill up with. All of those will also benefit from a project like this. So we're obviously open to the discussion, we think that we have something that's a tremendous benefit here. There will be those detractors and we will spend the time to seat down with them and understand what their concerns are, and do our best to meet their concerns.

James Miller

Operator, we're going to have our President of Energy in Oil Pipeline Supplement, please. Alex?

Alexander J. Pourbaix

It's Alex Pourbaix. Just one thing I'd add to Russ' comments on -- the comment about the certain refinery workers. And I think you have to think about the competitiveness of Eastern Canada's refining industry. Over the last decade, we have seen several closures of large scale refineries in Ontario and Québec. We've seen the same thing happen on the eastern seaboard. And the primary reason for that is those refiners are having to use internationally sourced crude, which is much more expensive than domestically sourced crude. And I would like to think, as we sit down with those refinery workers that you referred to, not only will this project make those refineries more competitive and thereby protect their jobs, an access to a very economical source of crude like a Western Canadian crude I would think would ultimately create, not only solved the risk of refinery shutdowns, but there should be significant opportunities in the future to even expand those refineries and create more jobs. And I think at the end of the day, that should be very compelling to people in that situation.

James Miller

Thanks, Alex. Operator, back to you for the final call on the phone please.

Operator

Our last question is from Jeff Byrd [ph] from Hal-Nova Scotia [ph].

Unknown Attendee

You said that the project was originally envisioned ending in Québec, so I'm wondering where the input has came to expand in New Brunswick? Was Arthur Irving banging on your door in Calgary? Or demand from producers at West? And also wondering why 2 Marine Terminals.

Alexander J. Pourbaix

On the first question, it's all of the above. The refinery currently imports its feedstock supply from international locations. It's currently railing crude there from Western Canada and from the northwestern part of the United States where we're seeing production growth. And at the current time, much lower prices than international prices. So it translates -- a hardwired pipeline transportation link between that supply and those refineries makes a lot of sense. The only question was could you make it economic? To make it economic, you have to hit a certain critical mass and have economies -- it's what we call economies of scale. Basically a sufficient size, you'd have to build the pipeline of sufficient size. You have to have enough volume to fill it up. And so that was what we tested in the open season, both with producers and, as I said, refineries in Québec and in New Brunswick to determine whether or not we would have sufficient volume to underpin a large scale pipeline project like that. And we determined, at the end of day, as you said, that through the work of all of those parties, right from Alberta through to New Brunswick, including the Irvings to bring that to reality. And obviously, by the results, people at both sides of this country think that it's a pretty good idea.

James Miller

Thanks, operator. I'm going to take things back to Calgary. We're going to end off with 2 or 3 questions here. We'll start with Gary [indiscernible]. Gary?

Unknown Attendee

Mr. Girling, you mentioned Bakken oil. You didn't say whether that was from Saskatchewan or from North Dakota? And did you provide yourself any option to bring in any domestic oil from the United States, number one. Number two, that terminal in Saskatchewan, does Québec use that as a bilateral switching point to ship your product through existing pipeline south into the United States?

Russell K. Girling

I'd say all of those things are still open to discussion. The pipeline as we proposed today is to move Canadian oil through to Eastern Canada and onto potential export markets. Obviously, we've had some interest from U.S. parties. We'll continue to pursue that. And understand that, as I said, currently we're seeing that Northwestern U.S. Bakken crude being railed through to Québec and to New Brunswick. There's an obvious interest from those parties. We haven't currently come to conclusion on what that might look like but, certainly, there's interest and we'll keep that conversation open. And as well, I mean, there'll be opportunities to -- for movement both directions, if that's what people want to do, but that's not part of the current scope. But obviously, when you announce a project like this, a whole bunch of other ideas start to gel and generate and we'll have to explore all of those as they arise.

Unknown Attendee

[French]

James Miller

Philippe, did you hear that?

Philippe Cannon

[French]

Unknown Attendee

[French]

Philippe Cannon

[French] She is asking if there -- what are the impacts over there in Alberta and if there is going to be new built?

John Van der Put

[French] So what I said was essentially that the facilities in Alberta will consist of the oil storage terminal in Hardisty and the new pipeline that will connect Hardisty to the Alberta Saskatchewan.

James Miller

John, can you do a quick translation of that answer please?

John Van der Put

We did.

James Miller

Oh, I'm sorry. I shouldn't have walked over there. Any final questions from the room before we wrap things up?

Okay. Thanks, everyone. Thanks to those who were on the phone, appreciate it. And thank you, operator, for your great work.

Operator

Thank you. The conference call has now ended. Please disconnect your lines. Thank you for your participation. [French]

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