TC Energy eyes green power transition for North American oil and gas pipelines
Plans would meet investor demands, help avoid rising carbon price expenses
Pipeline operator TC Energy Corp. could spend billions of dollars on its plans to lower emissions by switching to renewable energy to run its huge network of U.S. and Canadian oil and gas pipelines.
Calgary-based TC Energy, which ships oil and gas through nearly 100,000 kilometres of pipelines, one of the biggest networks in North America, has been encouraged by a better-than-expected response to a request in April for information on wind power for projects in the United States.
“We started just with our liquids pipeline and it gives us really a lot of confidence that we'll be able to pivot quickly to our natural gas pipeline business both in the U.S. and in Canada,” Corey Hessen, TC Energy's president of power and storage, told Reuters.
TC'S decision to power pipelines with wind and solar, instead of natural gas, is similar to smaller-scale plans by rival Enbridge Inc. and would go some way toward meeting investor demands to improve its environmental performance.
“It's a big prize and it's a really big opportunity,” Hessen said.
The project is the best near-term opportunity for TC to play a part in the energy transition, he said.
Energy firms worldwide are trying to reduce the planet-warming emissions they pump out in the process of producing and transporting oil and gas. Canada's oil and gas industry is the country's largest emitting sector.
Canada's rising carbon price could add a significant expense to TC Energy's costs if it fails to reduce its emissions.
Canada has pledged to cut emissions 40 to 45 per cent from 2005 levels by 2030 and will hike the price of carbon from $40 a tonne currently to $170 a tonne by 2030. It also charges industrial carbon emitters like TC under an output-based pricing system.
TC'S scope 1 and 2 emissions — that is, emissions it produces or that are produced to supply it with power — from its oil and gas pipelines were nearly 14 million tonnes in 2019, according to the company website.
TC said it is still in the process of quantifying how many tonnes of carbon emissions would be saved by switching to renewables to power pipelines.
The company incurred $69 million (US$54.9 million) in expenses under existing carbon pricing programs in 2019, up from $62 million in 2018, according to its latest sustainability report. TC expects most of its assets across Canada, the United States and Mexico to eventually come under regulations aimed at managing carbon emissions.
“It's in their interest to green their portfolio and start this strategy now,” IHS Markit analyst Kevin Birn said. “The world is going to get more aggressive on climate policies and that means carbon is going to be a cost.”
Francois Poirier, who became chief executive in January, has said he wants to use TC'S power and storage division, which includes renewable energy and which he used to oversee, to grow and diversify the company while also lowering emissions.
Hessen said the priority for his growing power and storage team is to secure renewable energy to power TC'S network of U.S. and Canadian pipelines.
The company received more interest than it expected when it asked renewable energy developers for information on 620 megawatts of wind-powered electricity to operate part of its Keystone pipeline, Hessen said.
Developers submitted responses for 14 gigawatts (GW) of wind, more than 20 times TC'S need, he added.
It would take 5 to 7 GW to power the entire U.S. and Canadian pipeline network, he estimated. That compares with total installed wind power capacity in the United States of 118 GW, according to the U.S. Energy Information Administration.
BMO Capital Markets estimated in a note to clients that securing 620 megawatts of wind power would cost around US$1 billion in capital investment, which implies the cost of converting TC'S whole U.S. and Canadian network would run to several billion dollars.
Hessen declined to discuss the potential cost for the renewable energy investment, but said “TC Energy has a history of really going after and being successful with large-scale capital deployments for its infrastructure.”
Some shareholders say they would prefer TC to invest in new pipelines or return cash to investors, rather than spend money on powering pipelines with renewables.
“Is it as good (a use of capital) as investing in pipelines, acquiring assets, or buying back shares? I suspect probably not,” said Martin Cobb, senior vice-president at Lorne Steinberg Wealth Management, which owns shares in TC.
Building new pipelines is challenging due to growing environmental opposition and government policies aimed at reducing reliance on fossil fuels.
TC is seeking US$15 billion in compensation from the U.S. government after Washington revoked a key permit for its US$9 billion Keystone XL (KXL) project earlier this year.
On Thursday, TC released second-quarter earnings that beat estimates for quarterly profit, as demand for its transport services returned with a rebound in crude prices.
Net income attributable to common shares rose to $982 million, or $1 per share, in the three months ended June 30, compared to a loss of $1.06 billion, or $1.11 per share, in the prior quarter.
In the first quarter, TC had taken a hit of $2.2 billion in impairment charges related to the suspension of its Keystone XL pipeline after U.S. President Joe Biden revoked a key permit.
Its comparable earnings stood at $1.05 billion, or $1.07 per share. That beat estimates of 96 cents per share, according to Refinitiv IBES data.