Why the West’s interest in TransCanada’s Energy East pipeline has cooled considerably

Why the West’s interest in TransCanada’s Energy East pipeline has cooled considerably

U.S. President Donald Trump and Prime Minister Justin Trudeau may have done more in 2016 to endanger the future of TransCanada Corp.’s proposed Energy East pipeline than any anti-oil activist.

Trump’s victory over Democratic candidate Hilary Clinton could mean the Keystone XL pipeline, vetoed by former U.S. president Barack Obama, is revived. The new leader of the world’s one remaining superpower has said he favours the 1,900-kilometre-long pipeline that would take 830,000 barrels per day of Western Canadian oil and ship it to refineries in Texas. Meanwhile, Ottawa approved two projects that same month – Kinder Morgan’s Trans Mountain pipeline expansion in B.C. and Enbridge Inc.’s Line 3 into the U.S. – that will add over one million barrels per day of pipeline capacity for Western producers.

If all those pipelines are built, it begs the question as to whether the proposed Energy East pipeline is necessary. When the $15.7-billion project was first proposed in 2013, the prospect of other pipeline projects receiving regulatory approval, such as Keystone XL and Enbridge’s Northern Gateway project (the Trudeau government rejected Northern Gateway on the same day it approved the Line 3 and Trans Mountain expansion) was very uncertain. Producers didn’t necessarily want to ship their product to the East Coast through the 4,500-kilometre-long pipeline, but it gave them another option.

“For Western producers, Energy East was kind of a booby prize,” says Herb Emery, the Vaughn Chair in Regional Economics at the University of New Brunswick. “With the Kinder Morgan expansion and Line 3 approved, political interest in Energy East in the West now may be severely diminished.”

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That’s not the kind of talk supporters of the pipeline want to hear, and those supporters include New Brunswick Premier Brian Gallant, Saint John-based Irving Oil and business leaders in the province. After all, the Energy East project would see a new pipeline and marine terminal built in New Brunswick and create thousands of jobs during the development and construction phase, as well over 250 direct and indirect jobs during the operations phase of the pipeline.

There are hundreds of millions of dollars in tax revenues at stake as well. Simply put, Energy East is one of the biggest economic opportunities in New Brunswick history. But its future is cloudier than ever thanks to November’s developments in both Canada and the U.S. “If it isn’t built I would view it more as an opportunity lost,” Emery says. “New Brunswick will look in the future very much the same as it does today.”

Bev Gaston hopes it doesn’t come to that. The mayor of the village of Doaktown, located in central New Brunswick, doubts the pipeline would have a major impact on his community of approximately 800 people. But he says it will be good for the province, and Atlantic Canada as a whole. “Atlantic Canada needs these projects,” Gaston says. “I find when these projects start, people get excited. Other small businesses ramp up to supply them. It’s a snowball effect.”

Joel Richardson, vice-president, N.B and P.E.I. divisions for Canadian Manufacturers and Exporters, is also confident the project, like a rising Bay of Fundy tide, will lift up many sectors of the New Brunswick economy. “When pipelines are constructed it’s no different than building a house,” Richardson says. “Yes, they are short-term jobs but you’ve got to look at all the spin-offs that come from that. The operational jobs are not as many as the construction jobs, but they are long-lasting and they sustain and support other businesses in the supply chain.”

The CME represents businesses in all sectors of manufacturing and exporting across Canada. It was an intervener during the National Energy Board’s regulatory review of Energy East when the hearings passed through New Brunswick in the summer of 2016. The hearings were fairly uneventful until they crossed the New Brunswick-Quebec border. Then the process went off the rails badly. Montreal Mayor Denis Coderre, First Nations leaders and environmentalists in the province oppose the project saying it would threaten water supplies and contribute to growing greenhouse gas emissions by encouraging more development of Alberta’s oil sands.

In late August it was reported that two NEB board members on the three-person Energy East review panel, Jacques Gauthier and Lyne Mercier, had met privately with former Quebec premier Jean Charest while he was on the payroll of TransCanada Corp. Protesters then stormed the NEB’s hearings in Montreal alleging that the meeting with Charest proved the review was rigged to reach approval of Energy East.

The NEB immediately suspended the review process. In September the regulator announced all three panel members – Gauthier, Mercier and Roland George – had recused themselves from the review. The review was adjourned until a new panel was selected. As this magazine went to press, the panel still hadn’t been selected, although New Brunswick Liberal MP Dominic LeBlanc told New Brunswick’s Telegraph Journal in December that Ottawa would appoint three new temporary board members to the NEB in “the next few weeks” and the review process was likely to begin early in 2017.

UNB’s Emery wonders if a picking a new panel will help remove the perception that the hearings are rigged. And it’s not as if there isn’t opposition to the pipeline in New Brunswick. While municipal and business leaders in the Saint John area, where the marine terminal will be built and where Irving Oil owns and operates a 300,000 bpd refinery, are big supporters of Energy East, the project isn’t as popular in other parts of the province. “There’s no agreement within New Brunswick that residents want this project,” Emery says. “Lots of communities would rather it not be built.”

The City of Edmundston, located near the Quebec border, is one of those communities. City council says it is against the proposed route of the pipeline and has asked the NEB to divert it from the municipality’s main water source, the Iroquois River. The Ecology Action Centre, an environmental group, is also opposed to the pipeline and is concerned about the impact an oil spill would have on the Bay of Fundy ecosystem.

Environmental concerns may not matter as much as the commercial ones, however. Alberta oil production has been selling at a significant discount to global benchmark oil blends like Brent and West Texas Intermediate because producers can’t get their product to tidewater and access additional markets beyond the U.S. But even the Canadian Association of Petroleum Producers – the oil industry lobby group – is projecting oil sands production to only increase by 850,000 bpd by 2021 and another 700,000 bpd between 2021 and 2030.

That adds up to approximately 1.5 million bpd of additional supply hitting the market over the next 13 years. Now consider that if Keystone XL, the Trans Mountain expansion and Line 3 are all built, they will add 1.5 million bpd of pipeline capacity to the mix. Energy East proposes to ship 1.1 million bpd to refineries in Quebec and Saint John and the Saint John marine terminal. Where is the oil going to come from and what markets will producers sell it to?

Oil companies can always increase production. After all, the Alberta government says it has 166 billion barrels of proven oil sands reserves. Eastern Canadian refineries, including Irving Oil’s Saint John refinery, import as much as 700,000 bpd of foreign oil to meet customer needs and Energy East could displace some of those exports. Finally, oil shipped on Energy East that reaches the Saint John marine terminal will be loaded on to tankers and sold to markets like Europe, Asia and even the U.S.

However, the fact the Trans Mountain expansion and Line 3 pipelines have been approved, and a presidential approval of Keystone XL might not be far off, means more pipeline options are in play now than there were 12 months ago. Emery says the urgency among Western Canadian producers, and even TransCanada, to build Energy East probably isn’t as great in 2017 as it once was. “I’m pretty sure TransCanada has a plan B and plan C, which is why you don’t hear them crying in public about the Energy East review being held up,” he says.

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2 Comments to “Why the West’s interest in TransCanada’s Energy East pipeline has cooled considerably”

  1. I always thougbt it would make more sense to convert the unused gas pipeline to oil, and build a terminal on the St. Lawrence. Extending the line to NB doesnt seem to benefit producers, just Irving.

    • Darren Campbell // February 22, 2017 at 2:32 pm // Reply

      Ralph: A terminal in Gros Cacouna on the St. Lawrence was scrapped by TransCanada after an uproar over the fact it would impact beluga whale populations, so there were plans to have a terminal on the St. Lawrence as well as one in Saint John.

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