The business case for TransCanada Corporation’s 1.1 million-barrel-per-day Energy East pipeline has largely evaporated, according to a secret Finance Canada memo obtained by CBC News.
“The low price environment has led to oil production forecasts being revised downward; meaning that sufficient capacity (from both rail and pipelines) is projected to exist to transport oil until at least 2025,” states the December 10, 2015 memo from Jean-Francois Perrault, then the assistant deputy minister of the Department of Finance’s economic and fiscal policy branch, to Deputy Minister Paul Rochon. Perrault is now chief economist at Scotiabank.
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TransCanada plans to begin pumping diluted bitumen through the 4,600-kilometre pipeline in 2000.
The memo indicates Energy East’s viability depended in large part in the higher price tar sands/oil sands exporters could charge based on the Brent crude oil benchmark, a price set on a commodity market in Europe, compared to the lower cost of West Texas Intermediate crude. But most of that advantage has disappeared.
“At several points in 2011-12, the price received for oil shipped to the Atlantic would have been $20 per barrel higher than oil shipped to the United States,” Perrault notes. Today, “the benefits of the Energy East pipeline would only be $1.48 per barrel compared to oil shipped by existing pipelines to the U.S.,” although that advantage increases to $6.00 per barrel compared to oil by rail.
TransCanada has spent $700 million on Energy East and has already seen the cost of the project soar 30%, from $12 billion to $15.7 billion, en route to a possible price tag of $19.4 billion.
