Ottawa has taken a financial stake in one controversial oil pipeline. Could it be persuaded to do the same for the cancelled Energy East?
DEREK BURNEY HAS TAKEN UP the cause of the Energy East pipeline.
Yes, Burney―who once served as Canada’s Ambassador to the U.S. and was former Chief of Staff in the Office of the Prime Minister under Brian Mulroney―is aware TransCanada Corp. cancelled the proposed $15.7 billion project over a year ago. But that hasn’t stopped the 79-year-old former diplomat from believing a pipeline to deliver light oil from Western Canada to tidewater in Saint John, N.B. is a good idea.
“The concept of moving oil from the West to the East has always made sense to me,” says Burney, who is now a strategic advisor for the Norton Rose Fulbright law firm. “It’s a project that has a big maple leaf on it.”
Once upon a time, Calgary-based TransCanada also touted the Energy East pipeline as a project in the national interest. It would give Western Canadian producers other markets to sell their oil to other than the U.S. The 4,600-kilometre-long pipeline would also create thousands of construction jobs across Canada. In New Brunswick, TransCanada said the pipeline would result in $6.5 billion in investment in the provincial economy, over 3,700 direct and indirect jobs during the nine-year construction phase and $853 million in tax revenue during the life of the project.
TransCanada was vague about its reasoning for cancelling the project in October of 2017. It said a “careful review of changed circumstances” caused it to kill a pipeline with a capacity to ship 1.1 million barrels per day of Western crude. Industry experts feel it grew tired of fierce opposition to the pipeline in Quebec and was concerned about changes to the regulatory process made by Prime Minister Justin Trudeau’s Liberal government.
The pipeline company’s cancellation announcement figured to be the last Canada heard of Energy East. But then in late May, Ottawa bought the troubled TransMountain pipeline expansion project in B.C. from Kinder Morgan for $4.5 billion after the Texas-based company had suspended the project. That move resulted in some politicians and business leaders on the East Coast calling on the federal government to revive Energy East somehow.
Former Conservative Party cabinet minister (and Nova Scotia raised) Peter MacKay wrote in The National Post this summer that a revived Energy East pipeline could “save” Canada’s energy sector. Conservative Party leader Andrew Scheer pledged in August to bring the project back to life if he is elected prime minister in the next federal election, which is expected to be called in 2019. That same month a rally was held in Halifax in support of Energy East, although it also drew some protesters opposed to the project.
Amid all the noise, Burney thinks there are still compelling reasons to build the Energy East pipeline. One is that it would provide access to global markets for Western Canada’s oil rather than sending it to one customer that is already well supplied―the U.S. Energy East would send Canadian oil to refineries in Quebec and Irving Oil’s Saint John 320,000 bpd refinery on tidewater where it could fetch higher prices from other countries less well-endowed with oil. In late September, the Western Canada Select oil blend was trading at about a US$34 discount compared to the West Texas Intermediate blend.
Burney says the pipeline would encourage added production in Western Canada and allow Canada to reduce foreign oil imports from countries like Saudi Arabia. Burney also thinks the Trudeau government needs something to brag about regarding the economy with an election looming. “This government doesn’t have much to put out there for accomplishments in the next election, except for cannabis legalization,” Burney says. “That might get people high, but it’s not going to get many people employed.”
In Calgary, EY Canada oil and gas expert Lance Mortlock says shipping Western Canada’s crude to the East Coast might make sense given the price discounts the West’s oil is facing south of the border. The U.S. oil and gas industry is booming. In North Dakota’s Bakken play alone, oil production reached an all-time high in July of 1.27 million barrels per day. Getting more of its oil to the East or West coast where it can be shipped on tankers to Asia or Europe is attractive to producers in landlocked Calgary. “There is a high level of interest in that,” Mortlock says. “Our biggest customer―the U.S.―is now our biggest competitor.”
However, Mortlock is not exactly bullish on the prospect of Energy East being revived by a private sector company like TransCanada. He says regulatory uncertainty over Ottawa’s proposed Bill C-69, which would overhaul federal environmental assessments of resource projects, is chasing away investment in Canada. And worries over regulatory uncertainty may be even greater since a federal court decision in August halted construction of the Trans- Mountain pipeline citing inadequate consultation with indigenous peoples. “Why would you sink money into something with that regulatory uncertainty,” Mortlock asks. “In the U.S. they seem to be able to get things done. We can’t even get one pipeline in the ground.”
Herb Emery is even more pessimistic about an Energy East pipeline revival than Mortlock is. The Vaughn Chair in Regional Economics at the University of New Brunswick in Fredericton agrees that the current regulatory situation in Canada makes it unlikely any private company would propose building an oil pipeline that crosses multiple provincial boundaries.
But even if that wasn’t an issue, Emery says there hasn’t been enough broad provincial support for the pipeline to make it a hot topic in Ottawa. “You didn’t see [New Brunswick] federal MPs or MLAs fighting hard to get this thing through,” Emery says. “There was confusion in the region as to what the benefit was other than construction.”
The muddy results of the New Brunswick provincial election in September likely won’t help any efforts to rekindle interest in Energy East. With the Progressive Conservatives taking 22 seats, the Liberals 21 and the People’s Alliance Party and the Green Party winning four and three seats, respectively, the new provincial government will be pre-occupied with holding a slim minority rather than putting substantial lobbying muscle behind an oil pipeline the private sector doesn’t want to build.
But if New Brunswick has any hope of reaping the economic benefits of a mega-project like Energy East, Burney says New Brunswick’s premier, and the premiers of Atlantic Canada, need to stand together and be champions for Energy East. He agrees with Mortlock and Emery that the private sector isn’t going to take on this type of project right now, which means the federal government will have to bring it back to life somehow.
At best, it seems like a longshot that the Trudeau government could be convinced to buy a piece of another pipeline. But Burney says if New Brunswick and its regional neighbours push hard for the project, it may be able to convince Ottawa to revisit the controversial Energy East pipeline.
“Governments are remembered for the big things they accomplish― the big, bold decisions.” Burney says. “What these projects need to fly is a political champion. You can’t get it without balls. You have to have a prime minister or a very strong minister willing to take the flak because it’s in the national interest.”