Pulling the plug on Energy East: Big loss for Canada, big win for the Liberals
After dropping hints a few weeks ago, TransCanada officially announced the cancellation of the Energy East Pipeline and Eastern Mainline projects. The company will take a $1 billion non-cash impairment charge on the project.
The National Energy Board (NEB) was forced to restart regulatory hearings earlier this year after allegations of conflict of interest and imposed new hurdles on the environmental review process for Energy East.
The Liberals were set to decide on the $16 billion project just before the next federal election. The pipeline faced its most vocal opposition in the voter-heavy province of Quebec. The cancellation represents the loss of 14,000 jobs cross country, mostly in Quebec and New Brunswick, where a new marine terminal would have been constructed.
In its termination letter to the NEB, TransCanada blamed "substantial uncertainty around the scope, timing and cost" associated with the revised regulatory review process as well as "existing and likely future delays ... associated cost implications and the increasingly challenging issues and obstacles" facing the project.
The NEB now requires pipeline operators to assess both upstream and downstream GHG emissions, but does not factor in emissions displacing by reducing foreign crude imports. Canada imports almost 600,000 bbl/day of crude, about half into Irving Oil's 300,000 bbl/day refinery in Saint John, New Brunswick.
Natural Resources Minister Jim Carr says this was a "business decision" related to low commodity prices and Canada is indeed "open for business." Carr denies changing the rules of the game for regulatory approvals and disagrees that current regulations put domestic production at a disadvantage over foreign imports. The minister reminds voters his government already approved two pipelines, the Trans Mountain Expansion and Enbridge's Line 3 Replacement. The average time required to get a pipeline approved in Canada is about 5 years.
Prior to last November's US election, TransCanada had largely written off the $10 billion Keystone XL pipeline. Keystone XL is significantly cheaper than Energy East, providing access to a much bigger market in the Gulf Coast, where the appetite for heavy crude is very healthy.
Excluding Energy East, TransCanada still has $24 billion in near-term projects to be completed. In light of Keystone XL's pending construction, TransCanada did not disclose whether it had sufficient shipping commitments on Energy East. Keystone XL is still waiting for a route approval from the province of Nebraska. A decision is expected before year end.
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