By Vipal Monga and Austen Hufford
TORONTO -- TransCanada Corp.'s decision to end development of
two Canadian energy pipelines is another setback for Canadian
energy producers, who have been clamoring to get their landlocked
oil and gas to markets in Europe and Asia and reduce dependence on
the U.S.
Pipeline operator TransCanada announced Thursday morning that it
pulled the plug on the Energy East and Eastern Mainline pipeline
projects amid the continuing slowdown in the oil sector and a
tougher regulatory environment.
Chief Executive Officer Russ Girling said the decisions come
after "a careful review of changed circumstances."
A company spokesman declined to elaborate on Mr. Girling's
remarks. Last month, however, the company said it would review
Energy East's viability after Canada's energy regulator widened the
scope of its project review to the potential for increased carbon
emissions once the oil is shipped to its final destination.
The 4,500-kilometer (roughly 2,800 miles) Energy East pipeline
was planned to run from the oil-rich area in Alberta and
Saskatchewan to the refineries of eastern Canada and a marine
terminal in New Brunswick, carrying about 1.1 million barrels of
crude oil a day. The Eastern Mainline project included new natural
gas pipeline and compression facilities largely along the company's
existing systems in southern Ontario.
The Energy East pipeline could have allowed producers an avenue
to ship oil to Europe and potentially as far as India. That would
have broadened the market for Canada's oil exports, almost all of
which currently go to the U.S., said Jackie Forrest, director of
research for Calgary-based ARC Energy Research Institute.
"We don't have diversity of markets," said Ms. Forrest.
According to the Government of Canada's National Energy Board,
Canada exported 3.10 million barrels a day in 2016, 99% of which
went to the U.S.
As a result of its decision on Thursday to end the projects,
TransCanada said it is reviewing the project's 1.3 billion Canadian
dollar ($1.04 billion) carrying value and expects to record an
estimated $1 billion impairment charge in its fourth quarter.
Investors seemed prepared for the news, as TransCanada's stock
was virtually unchanged on Thursday afternoon, trading up 0.14% at
$48.91 a share.
TransCanada's decision comes after the Canada's Liberal Party
government, led by Prime Minister Justin Trudeau, last year nixed
Enbridge Inc.'s proposed Northern Gateway pipeline across the
western province of British Columbia. The Gateway pipeline would
have moved more than half a million barrels of oil a day, and
potentially opened up Chinese markets to Canadian crude.
Canadian oil industry groups were discouraged about
TransCanada's announcement.
"We're beholden to the U.S.," said Tim McMillan, president of
the Canadian Association of Petroleum Producers, which represents
75 large oil producers from the country. He noted that the U.S. has
started to export oil and natural gas, so the Canadian industry is
supplying a market that doesn't need its product.
In August, the country's energy regulator said it would widen
the scope of its project assessment to incorporate carbon emissions
from the crude after it left the pipeline.
Typically, the regulator, the National Energy Board, only
considered carbon emissions from the construction and operation of
the pipeline. The board said it made this change to the scope of
its outlook due to public interest in climate change.
Weeks later, TransCanada said it was reviewing whether to
proceed with Energy East.
Also hurting the viability of the project, said analysts: prices
that have plunged since the company proposed the project in 2014,
when oil was trading close to $100 a barrel. The price of oil is
now hovering around $50 a barrel, making production and
transportation less profitable.
TransCanada's move put Canada's Liberal government on the
defensive Thursday. It was under fire from the conservative
opposition, which claimed the Trudeau administration's energy
policy costs Canada jobs and investment.
"This was a business decision," said Jim Carr, minister of
natural resources, characterizing TransCanada's move as motivated
by the falling price of oil and slowing growth in production.
"Canada is open for business."
He noted that the government has approved Kinder Morgan Inc.'s
Trans Mountain pipeline through British Columbia and Enbridge
Inc.'s Line 3 pipeline from Alberta to Wisconsin.
Opponents said the TransCanada projects would have increased
greenhouse-gas emissions by allowing oil-sands producers, the most
greenhouse-gas intensive sources of crude, to ramp up
production.
"This is an important day in the fight against climate change in
Canada, " said Adam Scott, senior adviser for Oil Change
International in a statement. "Realizing that Energy East would
never would never be allowed if its full climate impact was
accounted for, TransCanada has walked away from the project."
Another pipeline, the Keystone XL project, which got approval
from President Donald Trump in March, has struggled to find
interested oil producers and refiners. That pipeline, also owned by
TransCanada, is planning to ship crude from Canada to the U.S. Gulf
Coast.
--Paul Vieira in Ottawa contributed to this article.
Write to Vipal Monga at vipal.monga@wsj.com and Austen Hufford
at austen.hufford@wsj.com
(END) Dow Jones Newswires
October 05, 2017 17:04 ET (21:04 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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