Bloomberg.com/with files from Kevin Anderson
TransCanada Corp. has scrapped its Energy East Pipeline and Eastern Mainline projects, oil and natural gas conduits that have faced regulatory hurdles in Canada and stiff opposition from environmental groups.
As a result of the decision, TransCanada expects an estimated $1 billion after-tax, non-cash charge to be recorded in the fourth quarter, the company said in a statement Thursday. Because regulators failed to reach a decision on the projects, TransCanada expects “no recoveries of costs from third parties.” The Energy East link to Canada’s Atlantic Coast carried a $15.7 billion price tag.
Energy producers in Alberta had hoped the projects would help them diversify their markets, with most of the existing pipeline network linking the energy-rich province to the U.S. Midwest and Gulf Coast. Last month, TransCanada sought a 30-day suspension of the project applications for more time to review environmental assessment factors.
“TransCanada was forced to make the difficult decision to abandon its project, following years of hard work and millions of dollars in investment,” the Canadian Energy Pipeline Association, an industry group, said in a statement. “The loss of this major project means the loss of thousands of jobs and billions of dollars for Canada, and will significantly impact our country’s ability to access markets for our oil and gas.”
The decision comes as TransCanada seeks again to complete its controversial Keystone XL pipeline, which the Obama administration rejected in 2015. The US$8 billion project, which would carry heavy crude from Alberta to Nebraska, is awaiting state approval in Nebraska after a hearing in August. A final decision on whether to build the line is pending.
In January, the National Energy Board voided previous decisions on the Energy East application, forcing the company to start the hearing process anew shortly after competing pipeline projects have been approved. The change came after the regulator’s previous hearing panel stepped down amid accusations of bias.
TransCanada applied to build Energy East three years ago, seeking to open access for Western Canadian oil producers to the Atlantic Ocean for exports to Europe. It faced intense opposition in Quebec, where the province’s premier said the line posed a significant risk to its freshwater resources.
Energy East would carry about 1.1 million barrels of oil a day from Alberta and Saskatchewan to eastern Canadian refineries and a marine terminal in New Brunswick. The Eastern Mainline project would add new gas pipeline and compression facilities to an existing system in Southern Ontario, where most of the country’s home and industrial gas consumers are located.
“We are not at all surprised by the decision,” given that TransCanada had sought to delay the project applications, said Robert Kwan, an analyst at RBC Dominion Securities Inc., in a research note. The decision won’t affect the company’s dividend because its growth forecast didn’t include those projects, he said.
Kapuskasing mayor Alan Spacek said he was very disappointed by the news.
“This is a very significant blow to the economy of Northern Ontario and the country as a whole,” he commented. “This is a project that had merits not only economically but socially and environmentally and now that has all been lost.
“It means that Northern Ontario we’re going to continue to see high fuel prices and that we’re going to be further challenged by the fact that we have a very large pipeline infrastructure here, which is underutilized. This project had significant promise for using that infrastructure and it begs the question as to what will happen with that infrastructure.
“There was going to be billions and billions of dollars of economic activity and benefit from this project proceeding and now that is lost as well.
“From an environmental standpoint, it means we’re going to continue to move a lot of oil by rail. Statistically, we know that is far worse for the environment than a pipeline is.
“This would have went a long way toward stabilizing the economy in Northern Ontario and Eastern Canada. Now, those areas are going to have to continue to consume imported oil, while leaving oil in the ground in western Canada that we can’t get access to.
“The environmentalists say this is a great day for Canada. I certainly hope they are aware of all of the implications of this announcement socially, economically and environmentally.”