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Energy East no boon for refiners: report

CALGARY - The proposed Energy East pipeline won't be the boon to Eastern Canadian refineries that supporters claim because the vast majority of the oil in it would be bound for export markets, environmental groups argued in a report released Tuesday.

The $12-billion project would likely use the lion's share of its 1.1 million barrel per day capacity to send unrefined oilsands crude to markets like India, Europe and possibly the United States, says the report, penned by The Council of Canadians, Ecology Action Centre, Environmental Defence and Equiterre.

The pipeline would run 4,600 kilometres from Alberta to Saint John, N.B., using repurposed pipe already in the ground for roughly two thirds of the way.

The company planning to build it, TransCanada Corp. (TSX:TRP), aims to file a formal regulatory application this summer and has been engaging with communities along the route in an effort to build support.

Backers in industry and government have said Energy East will help ailing refineries in the East — reliant on high-cost crude from abroad — by connecting them with a stable, low-cost supply from Western Canada. The proposal also includes export terminals in Quebec and Saint John, N.B., from which some of the oil can be sent overseas by tanker, getting producers a better price.

The report Tuesday said the three refineries along the Energy East route — Suncor Energy's (TSX:SU) in Montreal, Valero's near Quebec City and Irving's in Saint John, N.B. — have a combined capacity of 672,000 barrels per day.

Of that, the groups figure 550,000 barrels per day can come from elsewhere — offshore crude in Atlantic Canada, booming U.S. shale resources and, eventually, via Enbridge Inc.'s (TSX:ENB) recently approved reversed Line 9 pipeline between southwestern Ontario and Montreal. That leaves just 122,000 barrels per day of refining capacity that can be served by Energy East, the report said.

"It's very frustrating to watch a company trying to convince Canadians that they should accept these massive risks based on some perceived benefit that they may receive. When you dig into it, you find that it's an empty promise," said Adam Scott, with Environmental Defence.

"It's just not true that Eastern Canada's going to benefit in the way that TransCanada's saying they are. And when you look and see that this is a project about putting vast quantities of oil onto tankers and shipping them out of the country, people who are convinced that 'this is going to mean more local jobs for me' are going to be very disappointed."

A common lament in the pipeline debate is the loss of "value-added," high-paying jobs in cases where the crude is being sent abroad, rather than kept in Canada to be processed into more valuable products.

It's on those grounds that the federal NDP has expressed a preference for Energy East over Keystone XL, another TransCanada proposal to send oilsands crude to the U.S. Gulf Coast. But the report Tuesday, and a separate one by the Pembina Institute last month, would appear to cast doubt on that view.

A report by the University of Calgary's School of Public Policy released Tuesday takes aim at the notion that raw oil exports somehow detract value from the Canadian economy.

On the compensation front, average earnings per hour worked in oil and gas extraction top $100 per hour, compared with only $32 in the overall economy, wrote assistant professor Trevor Tombe. Mining and oil and gas extraction also beat other sectors on the productivity front.

"The bang-for-the-buck of raw-material exports for Canada's GDP, and therefore everyone's income, is large."

TransCanada has said Energy East's economic benefits would be massive and has described it as a nation builder on par with the Canadian Pacific Railway.

Company spokesman Shawn Howard dismissed the report Tuesday as being penned by "a group of professional activists."

Customers have signed firm, long-term contracts to ship crude to both refineries and export terminals along Energy East's route, but TransCanada could not provide a breakdown for confidentiality reasons. About 900,000 barrels per day of the line's capacity is spoken for.

"Energy East's contracts will support the long-term viability of Canadian refining jobs in Quebec and New Brunswick," Howard said.

"Energy East helps Canadian producers expand their market, which leads to jobs, enhanced energy security and significant contributions to government revenues across the country."

A study TransCanada commissioned last September, conducted by Deloitte & Touche LLP, noted Quebec and New Brunswick refiners would see big cost savings if connected with lower-cost western crude.

On a 100,000 barrel per day basis, Quebec refineries would save between $92 million and $336 million per year, while in New Brunswick the annual savings would be between $51 million and $377 million, the Deloitte report said.

The Deloitte report predicted the equivalent of 10,071 direct full-time equivalent jobs across the country will be needed to develop and build Energy East until 2018. Once the pipeline is up and running, Deloitte sees the creation of 1,081 direct jobs.

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