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Economic Argument for Energy East has Collapsed: Ex-Fossil Exec

admarkt / Pixabay
admarkt / Pixabay

Canada doesn’t need the Energy East pipeline today, and won’t be looking for new pipeline capacity until after 2025, six years after TransCanada Corporation proposes to complete the project, retired fossil executive Ross Belot argues this week on iPolitics.

The case for Energy East—advanced as recently as yesterday by Alberta Premier Rachel Notley, following the First Ministers’ meeting in Vancouver—is the revenue all Canadians lose from the “crude price discount” that once applied to Alberta oil. It meant product had to be sold at a lower price, due to the limited pipeline or rail capacity to deliver it to market.

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“Three years ago, the spread was $30 per barrel—higher than the cost to transport Canadian crude to the Gulf Coast by rail,” Belot writes. “Today, the spread is lower than the pipeline tariff. What this tells us is that surplus takeaway capacity likely has been created by Enbridge and TransCanada expanding their systems while everyone was watching Keystone XL and Northern Gateway run into political roadblocks.”

With the National Energy Board now projecting low-end oil prices of $48 to $80 through 2040, and tar sands/oil sands expansion slowing down as a result, “it’s pretty obvious Canada’s oilpatch won’t need any more pipeline capacity until after 2025, assuming Enbridge finishes its expansion in 2019. And even then, the required additional capacity won’t get the industry to 500,000 barrels per day by 2040,” Belot notes.

Energy East’s capacity would be 1.1 million barrels per day.

Moreover, “none of this analysis takes into account the actions of governments to combat climate change—how those actions might affect markets, how they might lead to the cancellation of planned projects or those already under construction.”

Some Canadian investors are still “behind the times,” Belot writes, with Scotiabank CEO Brian Porter recently describing Energy East as “a quick solution to get Canada’s energy to global markets and reduce that discount that Canadian producers face today.” Porter “went so far as to suggest the federal government consider spending infrastructure dollars on Energy East—a line we may not need,” Belot notes.

Canada did pay Enbridge $200 million in guarantees for Line 9, when the pipeline sat unused and unneeded for 20 years after it was built. Belot suggests learning from that experience.

“Why not park the Energy East idea for a few years to see how the world unfolds?” he asks. “There’s no need for the Quebec government to pursue an injunction to ensure the pipeline undergoes a provincial environmental review—not if we do the sensible thing and just hit pause on the whole concept.” Otherwise, “we could end up spending a lot of time and money, and fostering a lot of interprovincial tensions, for a megaproject that won’t pay.”