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.
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.