Analyst chatter about TC Energy considering selling off the controversial Keystone pipeline could raise the risk of a major spill or leak, but still improve the Calgary-based pipeliner’s rating for environmental responsibility, The Energy Mix has learned.
On Tuesday, Bloomberg Markets reported that TC “may look to monetize its liquids pipelines as well as smaller gas pipelines with targeted proceeds of as much as C$4 billion (US$2.9 billion),” aiming to fund new projects in Mexico and Western Canada.
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The story cited a note from RBC Capital Markets analyst Robert Kwan, who was in turn recounting a meeting with TC Energy’s chief financial officer. In an email to Bloomberg, the company declined to comment.
Clark Williams-Derry, energy finance analyst with the Institute for Energy Economics and Financial Analysis, stressed that news of any potential sale is “both tentative and uncertain,” with no company announcement to date confirming the analyst report.
But “companies sometimes use analysts to send out a ‘trial balloon’ to see how markets might react to a sale,” he said in an email. And increased safety and environmental risk would be “the most important issue in play” in an eventual sale.
“Owning and operating a pipeline involves taking on significant potential liabilities for oil spills and, ultimately, liabilities for decommissioning and cleaning up the pipeline at the end of its useful life,” he told The Mix. But “there’s a risk here that TC will sell the pipeline to a company that’s undercapitalized and less experienced in operating the pipeline, or that may skimp on maintenance. That could, at least potentially, increase the risk of a leak or spill. And if it’s a major spill that contaminates surface or groundwater, the liabilities could be huge, and overwhelm a small company.”
That scenario “raises an unsettling possibility,” Williams-Derry added. “TC Energy could improve its ESG rating, while actually increasing the risk of a spill, and even boosting the risk that the costs of cleaning up a spill are borne by insurance companies or taxpayers.”
And yet, getting pipelines like Keystone off the books could help TC Energy improve its environment, social and governance (ESG) rating, Bloomberg wrote. In addition to strengthening the company’s overall finances, a sale would be an “ESG-accretive divestiture” and “the major prize in right-sizing the balance sheet,” Tudor Pickering & Co. analyst Matthew Taylor said in an investor note Tuesday.
That dynamic “could actually reveal a potential limitation in ESG ratings,” Williams-Derry wrote. “An individual company can achieve an improved ESG rating by selling assets, even if the sale doesn’t result in any clear reduction in emissions, oil production, or spill risk.”
In an email last night, a TC Energy spokesperson declined to comment on the likelihood of a sale or the safeguards or due diligence the company would apply to a potential buyer. “We don’t comment on rumours or speculation regarding our business,” they wrote. “Our foundational gas and liquids businesses remain vital to TC Energy and provide market access for customers.”