TransCanada’s Energy East: Not enough oil for that pipeline, analysts say
TransCanada’s decision to cancel plans for its $15.7-billion Energy East pipeline has provoked a predictable storm.
Alberta Premier Rachel Notley and New Brunswick Premier Brian Gallant, vocal supporters of the project, are said to be “disappointed.”
Tory deputy House leader Lisa Raitt painted the announcement as the result of the Liberals’ “disastrous” energy policy.
The Canadian Energy Pipeline Association said the development means “the loss of thousands of jobs and billions of dollars for Canada,” adding that this will “significantly impact our country’s ability to access markets for our oil and gas.”
On the other side of the pipeline debate, a statement from Greenpeace celebrated: “An incredible victory for all the people, environmentalists, municipalities, landowners, unions, First Nations, and everyone who opposed this project.”
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Energy analysts, meanwhile, are largely shrugging their shoulders.
“Right now, [the main takeaway from this] is a ‘so what?'” said Carl Evans, senior crude oil analyst at Genscape.
That’s because the business case to build the pipeline has long been looking less than clear, he noted.
The math, when you boil it down, is quite simple.
There are already three projects in the works that would boost access to global markets for Western Canadian oil producers: That’s Enbridge’s plan to revamp its Line 3 pipeline that connects Alberta to the U.S. Midwest; TransCanada’s very own Keystone XL project, which would help carry the crude to U.S. refineries in the Gulf of Mexico and received a green light at the federal level under the Trump administration; and Kinder Morgan’s Trans Mountain pipeline expansion, which would link Alberta to the B.C. coast and has also received a federal-level blessing here in Canada.
If all of those three projects go through, Western Canada will have enough pipeline capacity to move 5.7 million barrels of crude per day by the end of 2020, Genscape forecasts.
But here’s the thing, by then the region is currently expected to produce only 4.8 million barrels per day, implying a spare capacity of 900,000 barrels per day.
Energy East would have added another 1.1 million barrels per day to that capacity.
That might have made sense years ago when oil was trading at $100 per barrel, but it’s hard to see a rationale for it now, noted Evans.
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Energy East would have been the pricier option, too
There was also another type of math working against Energy East, according to Andrew Leach, associate professor at the University of Alberta’s Alberta School of Business.
In part because of its sheer length, Energy East would have likely had higher shipping costs than both the Keystone XL and Trans Mountain pipelines. (The comparison isn’t quite as straightforward for Enbridge’s Line 3 project, which is an expansion of an existing line, according to Leach.)
“In a world where the oil sands were growing and the price of oil was really high, it didn’t really matter that that pipeline was a little pricier to ship on, because it was still a lucrative proposition,” he said. But oil shippers are a lot more price sensitive in a world where oil prices are hovering around $50 per barrel.
Pipelines work a little bit like toll roads, with operators charging a certain amount for use.
If you go with the highway analogy, there was questions of whether another 12-line highway was really needed, and also of whether motorists would have used it, given the toll prices, said Leach.
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