Yedlin: Demise of Energy East another gut punch for energy sector

To paraphrase Mark Twain, reports of the death of TransCanada’s Energy East pipeline project were not greatly exaggerated.

On Thursday, the Calgary-based company permanently iced the $15.7-billion project that would have been the country’s largest infrastructure investment funded entirely from private capital.

When TransCanada last month asked the National Energy Board for a 30-day suspension of its Energy East application, the writing was on the wall that the project would be cancelled.

A conversation with TransCanada CEO Russ Girling a few years back about how he would approach Energy East relative to the Keystone XL pipeline — at the time also suspended — clearly signalled the company would not spend billions to stay with an uncertain process.

And word has it there were some conversations as recent as last month that indicated Energy East would come off the table if Keystone XL moved forward.

On Thursday, Girling was true to his word.

Some have pointed out Energy East was no longer necessary, that the combination of slowing growth from the oilsands and the prospect of both the Trans Mountain Expansion and Keystone XL projects proceeding did not require a third pipeline option. Others have wondered why, given the oilsands slowdown, TransCanada would put KXL at risk in terms of seeking commitments from shippers.

There was also a view — and a valid one — that the portion of the TransCanada main line that would have been converted from shipping natural gas to shipping oil should remain a conduit for gas.

But it’s not only about that. This is about Canada as a place to invest, and right now it’s looking like Wednesday night’s Flames-Oilers game: a shutout.

Like Petronas’ decision to abandon its Pacific NorthWest LNG project — followed this week by subsidiary Progress Energy’s decision to sell its deep basin assets in Alberta — TransCanada made a business decision.

It can get a better return elsewhere.

And, as Girling said in a statement Thursday, the company has $24 billion in other projects on its books. Those dollars will be spent where they’ll generate the best return for the company and its shareholders.

For the energy sector and for oilsands players in Alberta, it’s another negative. With the budgeting season approaching, uncertainty surrounding pipeline capacity is omnipresent.

Hearings into a lawsuit that aims to block the Trans Mountain expansion began this week in British Columbia. In the U.S., President Donald Trump has approved KXL, but it’s not yet a done deal.

The uncertainty around pipeline capacity in Canada will undoubtedly lead other companies — here and abroad — to pause investment decisions in Alberta and elsewhere in Canada.

This is lousy news for Premier Rachel Notley, who’s become an unlikely champion for the oilpatch on the national stage and whose government needs the revenues that would come with both investor confidence and commitments of further investments.

The premier is well aware of the growing list of companies that have chosen to sell their oilsands assets and find other places around the world to put their money to work. The death of Energy East, a made-in-Canada project, will only heighten investor skepticism.

That means companies have to work harder to attract capital.

The energy sector employs the middle class in this country; a strong middle class is a cornerstone of the federal Liberal agenda.

And yet the decision by TransCanada, arguably borne of a National Energy Board panel that ignored the advice and established precedents of other pipeline approvals by including upstream greenhouse gas emissions in its assessment, will hit the middle class.

While some will argue economics killed Energy East, not the NEB overreach, that’s not quite right.

That was the view of federal Natural Resources Minister Jim Carr when reached late Thursday.

“(The project cancellation) is a result of economics and challenging conditions,” he said in an interview. “The government of Canada is concerned about the energy environment and the issues that are beyond the role of government,” said Carr, who reiterated the principles his government would have used to assess Energy East would have been the same as those used to assess Trans Mountain and Enbridge’s Line 3 project — both of which were approved.

The broader regulatory scope, not to mention delays created by the appointment of the new panel, contributed to the project’s demise for the simple reason that time is money.

One could reason this will also sterilize the economy of the Maritimes, and more specifically, New Brunswick. It’s not like economic growth is on a tear in that region of the country. Energy East would have been a catalyst for future investment.

Montreal Mayor Denis Coderre shamefully rejoiced in the project’s cancellation on social media Thursday.

Instead of oil flowing east from Canadian sources, the refineries in Ontario, Quebec, New Brunswick and Newfoundland will continue to import upwards of 750,000 barrels a day. As much as one-third of imports are from parts of the world where human-rights records are decidedly out of step with Canada’s.

Coderre should be reminded that Quebec has long been the beneficiary of transfer payments generated by a healthy energy sector, with many tankers passing through the Gulf of St. Lawrence on a daily basis.

Some time ago, a senior energy executive grimly prognosticated it was only a matter of time before TransCanada — and Enbridge — frustrated by the regulatory challenges in Canada and each with significant assets in the U.S., would relocate their offices south of the border.

The remarks seemed rather far-fetched, if not alarmist, on that sunny, summer day. They don’t today.

Deborah Yedlin is a Calgary Herald columnist

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