NO PLAN B FOR LIBERALS ON PIPELINES
Energy East is missed opportunity among failed projects, Claudia Cattaneo writes.
The cancellation of Energy East is the last of the big, nationbuilding pipeline decisions that resulted from Prime Minister Justin Trudeau’s forced transition to greener energy.
It’s another area of the economy that the federal government has badly mishandled. It’s based on an energy model for Canada that is a lousy fit for its geology, history, economy, and the competencies and desires of its people, particularly in Western Canada.
It’s the reason Calgary’s economy is dead when it should be humming with new activity amid rebounding oil prices, and that unemployment in Alberta is so high it’s a national political embarrassment.
Energy East died Thursday after the federal government expanded its regulatory review to include climate change impacts of the whole upstream and downstream oil industry. Proponent TransCanada Corp. said it took the decision after “a careful review of changed circumstances.” It expects to take an estimated $1 billion after-tax non-cash charge in its fourthquarter results. The decision was made after a five-year application process.
Natural Resources Minister Jim Carr insisted TransCanada pulled the plug because of business considerations influenced by the state of commodity prices.
It’s amazing how business conditions deteriorate when regulatory processes drag on forever, are changed to the detriment of the proponent and hold no promise of fairness. As they say in the business, time kills all projects.
While Energy East is over, the political outrage is just beginning and a unity crisis festering.
Montreal Mayor Denis Coderre, running for re-election next month, rubbed salt on Alberta’s wound by saying in a tweet he’s “very proud” of the outcome.
Alberta’s NDP premier, Rachel Notley, called the pipeline’s failure “an unfortunate outcome for Canadians. Our government has supported Energy East since the project was proposed.”
Alberta United Conservative leadership candidate Brian Jean lamented the “shameful moment in Canadian history.”
“Eastern politicians like Denis Coderre take pride and credit in the cancellation of energy products that would benefit the entire country. He’s proud of holding back Canada’s energy prosperity. Other provinces have declared war on Alberta. They are cheering for Canada to fail and threatening national unity. The political blockading of Canada’s energy products is not acceptable and must be fought every step of the way.”
Deputy federal Conservative leader Lisa Raitt blamed the decision on Trudeau’s “disastrous energy policies.”
Energy East now joins a heap of failed Canadian energy projects. The Northern Gateway pipeline, proposed by Enbridge Inc., was put out of its misery by Trudeau barely a year ago.
The $36-billion liquefied natural gas project led by Malaysia’s Petronas perished this summer after years of being pushed around by regulators.
Let’s not forget the mass exodus of international oilsands companies that found opportunities elsewhere, or the exodus of capital from Canada’s own energy champions, including TransCanada and Enbridge, in favour of expansions in the United States. We can thank Trudeau’s carbon taxes and a red tape onslaught at a time of uncertain oil prices for that, too.
The Liberals are now counting on other pipeline projects that they approved, the Trans Mountain expansion, proposed by Kinder Morgan, and the Line 3 expansion, proposed by Enbridge, to move forward. Then there is the Keystone XL pipeline, which was revived by U.S. President Donald Trump.
Yet the two most significant ones, the Trans Mountain expansion and Keystone XL, are far from a sure thing. If either one doesn’t make it to the finish line, given one is stuck in the courts in B.C. and the other before regulatory authorities in Nebraska, there is no Liberal Plan B for pipelines. No new major oil pipelines are in the works.
The Liberals are banking on new investment and expertise to build alternative energy in which Canada has no strategic advantage.
The funny thing about a government that kills private sector investment and jobs to fit its reelection strategy is that it breeds mistrust among investors of all stripes.
The loss of Energy East stings because it would have been a truly national initiative that would have benefitted Atlantic Canada and added value to Alberta’s oil by feeding refineries along the way. It would have replaced oil purchased from other countries with deplorable environmental standards and human rights records. It would have re-purposed an underutilized pipeline already in the ground for most of the way. It would have lifted Canadian oil prices and opened new markets for Canadian oil globally.
Trudeau had plenty to work with to help make it happen. Instead he let petty politicians and the environmental lobby spread fear and loathing unchecked. Sure, some LNG projects are still in the works, but their plans will take into account whether there is a reasonable chance of success under Canada’s demanding environmental standards.
With so few examples of successful energy projects in Canada today, anyone who dares is proceeding at their own risk.
Doug Black, senator and Calgary-based energy lawyer, said global firms are asking: “If TransCanada, one of the major companies in Canada, can’t get a project done in Canada, how can I?”
Canadian energy executives view TransCanada Corp.’s decision to scrap its $15.7-billion Energy East project as just the latest multi-billion-dollar project cancellation in a string of abandoned energy proposals worth more than $56 billion in the past year alone.
Calgary-based TransCanada on Thursday announced it would not proceed with its massive 1.1-million-barrels-per-day oil pipeline between Alberta and New Brunswick on Thursday after it had previously said it needed to understand the cost impacts of the federal Liberal government’s changing regulatory requirements.
“After careful review of changed circumstances, we will be informing the National Energy Board that we will no longer be proceeding with our Energy East and Eastern Mainline applications,” TransCanada CEO Russ Girling said in a statement Thursday.
Explorers and Producers Association of Canada president Gary Leach said the cancellation should be viewed in the context of other major energy projects that have not proceeded in Canada, including the $35-billion Pacific Northwest LNG project, the $5.4-billion Northern Gateway pipeline and CNOOC Nexen’s cancelled Aurora LNG project, for which costs were not disclosed.
“The common thread here is that Canada generally has displayed an unwelcoming environment policy and an uncertain approval process — the rules are unclear, there are lots of opportunities to intervene and oppose,” Leach said.
“For Canada, I think this is a blow. We are deluding ourselves if we think Canada is a place with a stable, predictable investment climate. These are signals that there’s something deeply dysfunctional in the legal and regulatory and investment climate that has occurred in the last few years,” Leach said.
Canada’s Natural Resources Minister Jim Carr said the cancellation was a business decision by TransCanada given oil market conditions had changed since the pipeline was first proposed.
But energy executives in Alberta expressed anger over the decision.
The Canadian Energy Pipeline Association, an industry group representing Canadian pipeline companies including TransCanada, called the project cancellation “extremely disappointing” in a release.
“This is evidence of how a lack of clarity and an unclear decisionmaking process regarding pipeline projects in Canada are challenging the energy sector’s ability to be competitive in the world market,” the organization said in a release.
Canada’s Building Trades Unions said it regrets the business opportunities that have been lost in Atlantic Canada, Québec, Ontario and on the Prairies.
“We do not need to have the rules of the game changed in midstream. That is neither fair nor appropriate; we ought not to ask a proponent to take a multi-billion gamble on a process that changes simply because a dog barked on Upper Teacup Road,” Canada’s Building Trades Union chief operating officer Robert Blakely said in a release.
The Energy East cancellation would force Canada to rely more on the U.S. to be it’s “broker” for oil and gas produced domestically at a time when the North American Free Trade Agreement is being renegotiated, argued Canadian Association of Petroleum Producers CEO Tim McMillan.
“I can’t think of a worse time” to be more reliant on the U.S., he said. The U.S. was the source of 54 per cent of Canadian oil imports, with Saudi Arabia (11 per cent), Algeria (11 per cent), Nigeria (10 per cent), and Norway (6 per cent), the other major suppliers last year, according to the NEB.
“There’s a drumbeat today in Canada of major projects that companies, after multiple years of development and billions spent in Canada to move these projects forward, have independently said, ‘We’re done. We’re not going to spend any more money in Canada to build this infrastructure,’” McMillan said.
Robert Kwan, an analyst at RBC Dominion Securities said he was not surprised by TransCanada’s decision, given that the company had sought to delay the project applications. However, the decision won’t affect the company’s dividend because its growth forecast didn’t include the project, Kwan wrote in a note to clients.
News on scuttling the Energy East’ project comes as analysts pare back their projections on the growth of Canadian oil production and question whether all the proposed pipelines are needed.
Canadian oil output is set to touch the five-million barrel-perday threshold around the end of 2018, from 4.7 million bpd last year, according to the International Energy Agency.
TransCanada is waiting on final approvals in Nebraska for its US$8 billion, 830,000-bpd Keystone XL pipeline, which will carry crude oil from Alberta to the U.S. Gulf Coast.
Competing pipeline projects, including Enbridge Inc.’s 760,000bpd Line 3 replacement project and Kinder Morgan Canada’s 590,000-bpd Trans Mountain expansion project, have been approved by the Liberal government and are moving forward. Both projects are expected to be in service by 2019 to ease a pipeline shortage facing Canadian oil companies.
A recent note from Calgarybased AltaCorp Capital suggests producers will be short on pipeline capacity till Line 3 and Trans Mountain come online, which will provide the extra capacity needed until around 2030.
However, both projects face intense opposition and could still fall by the wayside, analysts say.
Dirk Lever, an analyst at AltaCorp Capital in Calgary, said TransCanada was likely struggling to lock down shippers on its Energy East pipeline that had overbooked their positions on future pipelines when oil prices were riding high. Even so, the ideal pipeline system would be running below capacity to provide shippers more options without depending on rail. “You always want excess capacity,” Lever said. “You want the ability to shut a line down to do maintenance.”
For Canada, I think this is a blow. We are deluding ourselves if we think Canada is a place with a stable, predictable investment climate. These are signals that there’s something deeply dysfunctional in the legal and regulatory and investment climate that has occurred in the last few years GARY L EACH, Explore rs and Producers Association of Canada