AREVIEWOFTHEFAILEDTHEENERGYEASTPROJECT

MarcEnterJuly29,2018

TheEnergyEastandEasternMainlineProjects(referredtointhispaperas‘EnergyEast’),wasaprojectproposedbyTransCanadaPipelinesLimited(TCPL)in2014.ThisproposalwouldhaveseenthedevelopmentofapipelinestretchingfromAlbertatoNewBrunswick.Withatotallengthof4600kilometres(km),EnergyEastwouldhaveprovidedupto1.1millionbarrelsperdayofcrudeoil,includingdilutedbitumen(dilbit),fromAlberta,SaskatchewanandNorthDakotatoAtlanticrefinersandoffshoremarkets(Cattaneo,2016).

Theprojectraisedanumberofpolitical,environmentalandsocialquestions,manyofwhichhaveimpactedthestatusoftheprojectandTCPL’sdecisiontowithdrawtheirdevelopmentapplicationin2017(TransCanada,2017).

EnergyEastwasanationbuildingconcept,proposingtoconnectCanada’svast,relativelyinexpensiveoilreserveswithitsrefineries,andglobalmarkets.Theprojectwasincrediblyambitious.ItwouldhavebeenthelongestpipelineinNorthAmerica,andrequiredtherepurposingofoneoftheTCPLMainlinenaturalgastransmissionlines.Thisinitiativerequiredalignmentamonganumberofstakeholderswithinindustry,localcommunities,alllevelsofgovernment,andthe180FirstNationsimpactedbytheprojectright-of-way(TheCouncilofCanadians,2013).EnergyEast’srepealedstatushasledtodebateonwhetherornotapan-Canadianpipelineprojectmaybepossibleinthefuture.Thispaperconsidersthebackgroundoftheproject,themanyfactorsthatledtoitscancellation,whyitwasandcontinuestobeneeded,andhowasimilarprojectmightsucceedinthefuture.

EnergyEast:BackgroundandwhyitwasimportanttoCanada

The15.7billionCanadiandollar(CAD)EnergyEastprojectwasa1.1millionbarrelperdaycapacitypipeline—thelongestoffiveproposedprojectsthatincludedtheTransMountainexpansion,NorthernGateway,KeystoneXLandEnbridge’sLine3replacement(Vamburkar,2017).BeginninginHardisty,Alberta,itsterminusinSaintJohn,NewBrunswick,wouldprovideaccesstoanice-freedeep-watermarineterminalallowingfortradewithinternationalmarkets.Theprojectcalledfortherepurposingof3000kmofunderutilisedgaspipeline,andwouldrequirenewpipelinestobebuiltthroughpartsofAlberta,Manitoba,Ontario,QuebecandNewBrunswick(Figure1).

Figure1:EnergyEastproposedrouteandexistinginfrastructure(Cattaneo,2016).Atthetimeoftheproject’sconception(circa2011),therewasarapidlynarrowingdifferencebetweenpipelineegresscapacityoutofAlberta,andthegrowingamountofcrudeavailableforexport(seeFigure2;Cattaneo,2016).Thelackofinfrastructuretofacilitatetheexportofwestern

Canadiancrudehadadetrimentalimpactonthepricethatcouldbeobtained,leadingtoagrowingdifferentialbetweenCanadiancrudeandtheglobalseabornemarket(Brent)price.Atthetimeofconsideration,allexistingpipelineswiththeexceptionofTransMountainservedonlytheCanadianandUnitedStates(U.S.)markets.Therefore,aneedexistedtoincreaseexportcapacityfromtheWesternCanadaSedimentaryBasin(WCSB)todiversifiedmarkets.

Figure2:WCSBpipelinetakeawaycapacityandsupplyavailableforexport(orangeline)upto2015(GovernmentofCanada,2017).

WhilewesternCanadaproducersweresellingintotheU.S.,easternCanadianrefinerswerepayingapremiumtoreceiveforeignseaborneshipmentsfromMiddleEastern,EuropeanandSouthAmericanproducers.TheEnergyEastprojectwouldallowwesternCanadiancrudetoreachtheserefineriesandobtaintidewateraccesstocompetewiththesemarkets.

AfterextensiveplanningbytheIrvingrefiningcorporation,TransCanadaannounceditsEnergyEastproposalonAugust6,2013.

ProjectBenefitsEnergyEastwouldhaveadded35billionCAD(quotedin2013)toCanada’sgrossdomesticproduct(GDP)overthe40yearlifespanoftheproject(TheCanadianPress,2013).Economicbeneficiariesoftheprojectcanbedividedintothefollowingcategories:

- Jobcreationduringtheconstructionphaseandtheresultingprovincialtaxes;- Tariffs,electricitysalesandjobcreationduringoperationofthepipelineaswellsasresulting

provincialincome;- EmploymentandtrainingforAboriginalgroups;- Higherrevenuesforoilproducersandincreasedroyaltiestoprovincessupplyingthe

pipeline;- LowerfeedstockcoststoCanadianrefinersineasternprovinces;- Canadianconsumerbenefitfromrefinedproductsineasternmarkets;- IncreasedtaxrevenuetotheGovernmentofCanada;and,- TCPLbenefitofdevelopingandoperatingthepipeline.

ProvincialBenefactorsProvincesandAboriginalgroupsstoodgainthroughtheadditionofover10,000jobsduringconstruction,primarilyinAlberta,Ontario,Quebec,andNewBrunswick,wherenewsectionsofpipewouldberequired.36%ofthesepositionswouldberequiredinQuebec,and23%inOntario(The

CanadianPress,2013).Onceinoperation,1,081fulltimejobswouldbeaddedonanongoingbasisacrossthecountry(ibid,2013).OntarioandQuebecwereforecasttohaveseentheirGDPnumbersincreaseby2.7billionCADand3.1billionCADduringconstruction,and10.3billionCADand3.2billionCADrespectively,duringoperation.Revenuesduringpipelineoperationwouldhavebeenlargelyderivedfromtheelectricitysalesrequiredforpumpingstations(TheCanadianPress,2013).NewBrunswick’sGDPstoodtogain1.2billionCADduringconstruction,and1.6billionCADoverthelifeoftheproject,whileAlbertawouldhavereceivedaGDPincreaseof1.7billionCADduringconstruction,and6.1billionCADoverthelifeoftheproject(TheCanadianPress,2013).

Provinceswhereoilproducersoperatealsostoodtobenefitfromtheincreasedroyaltiespaymentsresultingfromhigherproductionandcrudeprices.

Communitiesalongexistingoiltransportationcorridorswouldalsobenefitfromtheenvironmentalandsafetyassociatedriskreductionthatweretobeattainedthroughthedisplacementofrailbornecrudeshipments.Forexample,astudybytheFraserInstitutefoundthatrailincidentsoccurredatafrequencyof0.227permillionbarrelsofcrudetransported,whilethefrequencyofincidentsassociatedwithpipelineswasfarlowerat0.049permillionbarrelsofcrudetransported(Green,2015).Thisisnoteworthyasthe2013LacMagantictragedybroughtintoquestionthesafetyandlongtermeffectivenessoftransportingcrudebyrailtransport(Judd,2013).

EastCoastRefinersIn2013,refineriesinQuebecandAtlanticCanadaimportedmorethan660,000barrelsofoilperday,ofwhich15%wassourcedfromtheU.S.(Tertzakian,2014).WhilethisparadigmhasshiftedsomewhatwiththereversaloftheLine9Bpipeline(whichallowsAlbertasourcedcrudetomorereadilysupplyMontrealrefiners),highersupplycostsstillplagueAtlanticrefineries(CBCNews,2015).EnergyEastwouldmakewesternCanadacrudemoreaccessibletoSuncor’sMontrealrefinery,Valero’sQuebecCityrefineryandIrving’sSaintJohnrefinery(Magder,2016).Irvingindicatedthat,aspartoftheEnergyEastproject,itwouldpartnerwithTransCanadafortheconstructionoftheCanaportEnergyEastmarineterminalnearSaintJohninordertofacilitateexportstointernationalmarkets(Cattaneo,2016).AlthougheasternrefinersarenotpresentlyequippedtohandletheWesternCanadianSelect(WCS)product,mostoftherefiners,includingpotentialinternationalcustomers,haveindicatedthattheywouldseektoincorporatetherequiredmodificationstobeabletorefineheaviercrudegradesoncetheEnergyEastpipelinewasapproved.

SupportandOppositionIn2013,thefederalgovernmentexpressedsupportfortheEnergyEastproject,claimingthatitwouldbea“pan-Canadiansolution”thatwouldseetheentirecountrybenefitfromitsenergyproducts,andwould“enhanceourownenergysecurity”(Whittington,2013).Atthetime,criticsoftheHarperadministrationarguedthatitwastoosupportiveofpipelineconstruction,andthattheC-38omnibusbillpassedin2012gave“thepowertogivethego-aheadtopipelinesandothermajorenergyprojectsregardlessoftheconclusionsofrecommendationscomingfromregulatoryhearings”(Patterson,2013).OnNovember4,2015,theLiberalPartyofCanadaformedfederalgovernmentaftercampaigningthattheNationalEnergyBoard(NEB)wouldbereformedasithadbecome“politicised”underthe

formergovernment,resultinginthedestructionofpublictrust.AlthoughthepartydidnotdirectlyopposeEnergyEast,itssupportofthecompetingTransMountainpipelinewassuspectedtoderivefromtheperceptionthatEnergyEastposedsignificantpoliticalriskinQuebecandOntario—wheretheybenefitfromalargesupportbase(Cattaneo,2017).

InQuebec,criticismsofEnergyEastincludedconcernsovertheenvironment,contaminationofdrinkingwatersupplies,andinsufficientprojectapplicationdetailedrelatedtomajorrivercrossings(EnvironmentalDefence,2017).ProvincialsupportersoftheprojectincludedAlberta,SaskatchewanandNewBrunswick.FirstNationsgroupsdemonstratedamixofsupportersanddetractors;however,itwasreportedthatthemajorityofQuebecFirstNationswereopposedtotheprojectcitingconcernsofpotentialspillrepercussionsandclimatechangeimpacts(TheCanadianPress,2016).

Intheproject’sinfancy,oppositioninQuebecleadtotheconsiderationofalternativerouteoptions.OnesuchoptionwasthereversalofthepipelinebetweenMontrealandPortland,Maine,whereamarineterminalcouldbelocated.OppositionwasobservedatthelocallevelinMaine,onceagaincitingconcernsover“taroil”transportation;however,supportwasvoicedfromthosewhostoodtobenefiteconomicallyiftheprojecteventuated(Fishell,2014).

Partsoftheprojectwerescrappedsoonafteritwasannounced.OneexampleincludedtheplantobuildamarineterminalatCacouna,Quebec.Whenexplainingwhytheyhadreconsideredthisoption,TransCanadacitedconcernsoverabelugawhalepopulation,whichinhabitstheareaneartheproposedsite(Posadzki,2015).

OppositiontotheprojectwasalsoreceivedfromSpectraEnergy(latertobecomeEnbridge),andEnbridgeitself.BothcompaniesaredependentontheTCPLMainlinetosupplytheirnaturalgasdistributionnetworksinOntarioandQuebec.Itwasclaimedthattheremovalof40%oftheMainline’sgastransmissioncapacitywouldresultintheirinabilitytoserviceexistingcustomers.TCPLrefutedthisclaim,statingthatexistingclientswouldcontinuetobeserviced,andcouldevenbenefitfromareductionintheirgasprices(Lewis,2013).ThiswasofenoughconcernthattheOntarioGovernmentinstructedtheOntarioEnergyBoard(OEB)tocompileareportonEnergyEasttohelpinformthegovernment’spositionontheproject(OntarioEnergyBoard,2015).TheEconomicCaseforEnergyEast

WesternCanadaCrudeandCurrentMarketsTheeconomicsoftheEnergyEastprojectwerecriticaltoitsjustification,andassuch,thecommoditypricingimplicationstowesternCanadacrudeisevaluatedaspartofthisstudy.Canadianoilproduction,whichtodaymainlyconsistsheavyoilfromtheoilsandsregion(seeFigure3),istradedattheWCSbenchmarkprice.WCStradesatadiscountrelativetotheNorthAmericancrudebenchmark(WestTexasIntermediate,orWTI)duetothelowerrefiningqualityofheavysourblends,aswellasinfrastructureandtransportationbottlenecks,mainlyasaresultofalackofpipelineegresscapacity.Thisdifference,referredtoastheheavyoildifferentialisexacerbatedduringtimesofpipelinetransportationoutages.Thisresultsincrudetransportbyalternative,moreexpensivemeanssuchasrail.DuetothelandlockednatureoftheWCSmarket,itisseldomreferencedtotheBrentprice.

Figure3:Canadiancrudeoilproductionbytypefrom1993to2018(NEB,2018).ThemajorityofCanadiancrudeexportsareshippedtoU.S.GulfCoastrefiners.ThesehighlycomplexrefineriesareequippedtohandletheheavysourWCScrude,andhaveapreferenceforthischeaper,lowerquality,buthigherenergyfeedstock,asitallowsforimprovedrefiningmargins(OilSandsMagazine,2018).ExternalfactorscanimpactthepriceofWCSsuchastheavailabilityandpriceofcompetingheavyoilsuppliessuchastheMexicanMayaandVenezuelanblends,U.S.GulfCoastrefineryshutdownsandvolatilityoftheWTIbenchmarkprice.LimitationsoftheWTIBenchmarkNotonlydoesagreatproportionofCanadianproductiontradeatadiscounttoWTI,WTIitselfisdiscountedrelativetotheBrentglobalbenchmark.Until2016,theU.S.wastheworld’slargestimporterofcrudeoil.ThisexposedtheU.S.toBrentpricing,resultinginlittlebetweenWTIandBrentpricing(Meng,2016).However,growingU.S.productionandlimitedpipelinecapacitytotheGulfofMexicohasresultedinaWTIdifferentialrelativetoBrent(RBCEconomics,2013).Figure4showsthepricedifferencebetweenBrentandWTIsince2004,whichhasbeenaswideas27UnitedStatesDollars(USD)in2011.Thispricedifferentialwastheresultoftheshaleoilsuppliedglutofcrude.WTIpriceisalsosubjecttochangesinU.S.policy.OnesignificantexampleofU.S.policyimplicationsonWTIpricewastheliftingofthebanonU.S.crudeexportsinDecember2015.ThispolicychangeresultedinareductionofthedifferentialbetweenWTIandBrentfromover25USDtounder11USD(TheEconomist,2015).

ForwesternCanadaproducers,pipelineaccesstotidewateristheonlysolutiontodiversifyfromtheNorthAmericamarket.AccesstointernationalmarketsfromtheeastcoastcouldchangethebenchmarkinwhichWCSisreferencedfromWTItoBrent.

Figure4:CandlestickchartdisplayingtheBrenttoWTIpricingdifferentialbyyear.HigherBrentpricingisdisplayedontheverticalaxis(TradingView,2018).WCSqualityrelateddiscountAsidefromsupplyanddemandforces,thereferencebenchmarkWTIandBrentcrudesarehigherqualitythanWCS,whichrequiresmoreintensiverefiningatcomplexfacilities.Forthisreason,WCSwillalwaystradeataminimumdiscountowingtoitslowerquality.Thistradediscountisestimatedatapproximately-5USDrelativetoWTI(Drager,2014).Thisdiscountisexacerbatedasoilpricesincrease,andisanimportantconsideration,whenevaluatingthecostoftheWCStoWTIdifferentialtoCanadianproducersovertime(Bacon&Tordo,2005).EnergyEastTollsandDiversifiedMarketOptionsTheproposedcostoftransportingcrudebyEnergyEastwasrelativelyhighcomparedtotheexistingtollschargedonKeystone.Tenyearcommittedcontractswerelistedat9.28CADperbarrelfordeliveryfromHardistytoSaintJohn(EnergyEastPipelineLtd,2016).ThecostofseabornetransportationtoEuropewasestimatedat1.50USD,and3to4USDtoIndia(Leach,2013).Forcomparison,pipelinetollstoCushing,Oklahoma,rangebetween2.46and2.96USDforheavycrude(Eisele,2018).Despitethehighertolls,TCPLwasabletofullysubscribetransportationserviceagreementsin2014(EnergyEastPipelineLtd,2016).Ifconstructed,thecostofdeliverytoIndiaviaEnergyEastwouldhavebeenlowerthancrudebyrailtotheGulfCoast,whichwasestimatedtobe20CADperbarrelin2018(Investments,2018;Healing,2018).Despitethesehighertransportationcosts,alackofalternativeshasresultedinanincreaseincrudebyrailshipments(Figure5).

Figure5:Canadianheavycrudeexports(leftaxis)andtotalcrudebyrailshipments(rightaxis)(AER,2018;NEB,2018).BothhavebeengrowingsinceJanuary2012.KeyAspectstheApplicationandReviewProcessNEBReviewProcessTheNEBreviewprocessbeganin2014whentheBoardappointedareviewpanel.TheoriginalpanelcameundercriticisminAugust2016,resultinginallthreemembersresigningfollowingtherevelationthattwoofthemembershadmetwithformerPremierofQuebecandTCPLconsultant,JeanCharest(Marandola,2016).

Followingthechangeofthefederalgovernment,anewhearingpanelwasselectedinJanuaryof2017byNationalResourcesMinisterJimCarr(Tasker,2016).Thenewpanelpromptlyvoidedalldecisionsmadebythepreviouspanel,effectivelyrestartingthereviewprocess(NationalEnergyBoard,2017).Italsoincorporatedsignificantchangesunderwhichtheprojectwouldbeevaluated.OneofthesechangeswastheimplementationofdownstreamcarbonemissionsandthelargerquestionrelatedtotheeffectofmeetingGHGemissiontargetsonthefinancialviabilityof,andneedforthepipeline(Healing,2017).ThiswasasignificantshiftfromtheoriginalrequirementsunderwhichtheTCPLapplicationwassubmitted(NEB,2017).TheKeystoneXLandTransMountainexpansionprojectshadreceivedapprovalundertheformerNEBassessmentcriteria,andduetothedramaticshiftinassessmentonEnergyEast,thechangewaswidelyinterpretedasbeingreflectiveoftheGovernmentofCanada’sindirectoppositiontotheproject.KeyFactorsthatContributedtoTransCanada’sDecisiontoWithdrawitsApplicationMajorfactorsthatplayedapartinTransCanada’sdecisiontowithdrawitsEnergyEastapplicationincludenegativesentimentamongkeypoliticalfactionsalongtheproposedroute,delaysincurredbytheNEBhearingpanels,andsubsequentpolicychangesthatwereimplementedontheEnergyEastassessmentcriteria.TCPL,althoughnotdirectlycitingtheseasthefactorsintheirdecisionarequotedassayingthattheywouldnotproceedwiththeproject“uponacarefulreviewofchangedcircumstances”(TransCanada,2017).TransCanadaestimatedthatthefailedprojectcostitsshareholders1billionCAD(ibid).

CanadianpublicsentimenttowardstheEnergyEastoilexportinfrastructurewaslargelyfocusedontheGHGemissionsassociatedwithAlberta’soilsands.Additionally,citizensineasternprovinces

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Totalcrude

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Totalheavycrudeexports Allcrudeexportsbyrail

wereconcernedbytheriskofadilutedbitumenspill,especiallyinQuebecwherethepipelinewouldhavecrossedasmanyas828waterbodies(Gobeil,2016).

CongruoustimingshouldnotfactorintothedecisionmakingprocessofmajorinfrastructureprojectslikeEnergyEast;however,theproject’sfailurewasassistedbythedelaysincurredduringitsreview.TheNEBhasindicatedthatitwillnotapproveadditionalpipelinecapacitywhilethereisexistingorapprovedcapacityavailable(Dachis,2017).Therefore,itisunlikelytheNEBwouldhaveapprovedthecombinedcapacityofEnergyEast,Keystone,andTransMountain.Figure6showsthatin2015,theNEB’swesternCanadaoilproductiongrowthpredictionsindicatedthatEnergyEastwouldnotberequireduntil2030(Poitras,2018).HadtheevaluationoftheEnergyEastapplicationbeencompletedpriortoNovember29,2016,whencompetingprojectswereapproved,itwouldhaveservedasacontendertotheseprojects.However,theapprovalofthecompetingpipelineswaslikelythelastinaseriesoffactorsthatwouldultimatelyculminateintheproject’swithdrawalonOctober5,2017.

Figure6:WesternCanadaoilproductiongrowth(2015to2040),andpipelinecapacityincreaseswithNEBreferencecarbonpricingscenarios(modifiedafterPoitras,2018andNEB-Canada'sEnergyFuture2017).IsanEnergyEast-likeProjectPossibleintheFuture?ItisunlikelythattheEnergyEastprojectproposalwillberevivedinthenearfuture,andlikelynotuntilthereisachangeinsentimenttowardtheprojectatthefederallevel.TheNEBhasapprovedaddedcapacityfulfillingrequirementsto2030;however,ifoneoftheapprovedprojectsfalters,therewillbeanimmediateneedforaddedexportcapacity.

AfutureEnergyEastwillalsodependontheWTItoBrentdifferential,aswellastheoilprice.Awideningofthespread,oranelevatedcommoditypricewillincreasepressureforexportcapacitytointernationalmarkets.ItisestimatedthattheWTItoBrentdifferentialneedstobeinexcessof6USD(infavourofBrentpricing)forEnergyEasttobreakevenwithKeystone.AholisticapproachwouldincorporatethevalueassociatedwiththereductionofriskthatisaffordedbyloweringexposuretotheWTIbenchmark.

OtherfactorsthatwillimpactthelikelihoodofafutureEnergyEastprojectincludethecostandrepurposingportionsoftheTCPLMainline.Whilethegastransmissionlineiscurrentlyunderutilized,thecompletionofupgradestotheNOVAGasTransmissionLtd.(NGTL)systemacrosstheWCSBwilllikelyleadtoincreasedvolumesonMainline.Oncethisoccursitwillbecomeincreasinglymore

Interimcapacityprovidedbyrail

complicatedtoaccessthisinfrastructure,resultingintheneedforanadditional3000kilometresofnewpipeline.Theaddedcostofthiswouldbeadetrimenttotheeconomicviabilityoftheproject.ShouldwestcoastLNGprojectsproceedorifMarcellusgasfillsdemandforeasterngasmarkets,thismayonceagainreducecapacityontheTCPLMainline,makingitavailableforrepurposing.

TheimpactsofboththeEnergyEastcessationandtheturmoilsurroundingtheTransMountainapproval,whichultimatelyrequiredthefederalgovernmenttopurchasetheproject,meansthatfutureapplicationstoconstructpipelinesinCanadamaysufferduetowaningsupportfromindustry.Theestimated1billionCADexpenseincurredasaresultofthefailedEnergyEastapplicationisatestamenttotherisksofembarkingonamajorpipelineprojectinCanada.SocialConsiderationsAtpresent,Canadianconsumersdonotincurafinancialcostbasedonthesocial,safety,andenvironmentalconditionsunderwhichtheoilthattheyusewasproduced.Asaresult,oilproducedinCanadacompeteswithimportedoilonpriceandqualityalone.Iffinancialimplicationsassociatedwiththesemetricsexisted,westernCanadaoilwouldhaveasignificantpriceadvantagewhencomparedtoforeignimports—muchofthisderivedfromconflictregionswithpoorhumanrightsandenvironmentalperformance.Insuchascenario,easternCanadamarketswouldhaveahighereconomicincentiveforapan-Canadianpipeline.

Paradoxically,foreignoilimportsthatsupplyCanada’seasternprovincesarenotsubjecttothecarbontaxesanddownstreamGHGemissionconsiderationswithwhichtheEnergyEastprojectandwesternproducersaresubjected(Vallée&Michaud,2017).

ThelatestNEBreviewprocessincorporatedtheupstreamanddownstreamemissionsoftheproductshippedintheEnergyEastpipeline.TheprojectthereforeinheritedtheGHGfootprintandnegativesentimentassociatedwiththeoilsandsprojectsthatweretosupplythecrudebeingtransported.WhiletherearehigherGHGemissionsassociatedwiththeextractionofbitumen,mostoftheGHGemissionsrelatetotheburningoffossilfuelsratherthanthemethodwithwhichtheyareextracted(Figure7).

Figure7:Welltowheelsgreenhousegasemissionsforoilsandsandothercrudes(IHSCERA,2011).RepercussionsofTPCL’sDecisiontoWithdrawitsEnergyEastApplicationTheEnergyEastfiascohasfuelleddoubtoverCanada’sreputationasaplaceforcapitalinvestment.ItissuspectedthatTCPLinitiatedtheprocessunderthepremisethatifthecorrectproceedingswerefollowed,andthatifitwasdeemedtobeinthenationalinterest,theprojectwouldbeapproved.TheinvestmentcommunityisunlikelytorememberthattheapprovalofthreecompetingpipelinespriortoEnergyEast’sreviewnegatedtheneedfortheproject.PotentialinvestorsmayalsonotrecognizeEnergyEastasTransCanada’sfailsafeoptionshouldKeystoneXLnothaveproceeded.ThelegacyofEnergyEastwilllikelyincludeNEBdelaysthatresultedininabilityoftheprojecttoberankedagainstcompetingpipelines,andthefactthattheprojectassessmentcriteriachangedhalfwaythroughreview,resultinginnewandambiguousrequirementsforthepipeline’sapproval.OpinionandRecommendationsCurrentandapprovedpipelinecapacitymeanthereislittlerequirementforEnergyEastinthenext10years.Furthermore,U.S.crudeexportsandtidewateraccessprovidedbytheTransMountainexpansionwillreducetheeconomicdriversbehindtheWCSandBrentpricedifferential.However,shouldeitherofKeystoneXLorTransMountainfailtobeconstructed,therewillbeanurgentneedforanadditionalexportpipelineinCanada.

Duringitsreview,theEnergyEastprojectlackedsupportfromQuebecandOntario.HadthevotingpublicintheseprovinceswantedEnergyEastasmuchasAlberta,SaskatchewanandNewBrunswick,itwouldalmostcertainlyhavebeenapproved.ThereluctanceintheseprovinceswillneedtobeaddressedpriortoanyfurtherconsiderationaboutanEnergyEastproject.

TheEnergyEastprojectlackedacceptancebyQuebecandOntario.HadthevotingpublicintheseprovinceswantedEnergyEastasmuchasAlberta,SaskatchewanandNewBrunswick,itwould

almostcertainlyhavebeenapproved.ThereluctanceintheseprovinceswillneedtobeaddressedpriortoanyfurtherconsiderationofanEnergyEastproject.

Stakeholders,includingthepublic,provinces,andaboriginalgroupscanbecomefurtherinvolvedandwillingparticipantsiftheystandtofinanciallygainfromtheproject.TheprecedenceofTransMountain’spurchasebyfederalgovernmentshowsthatownershipbycitizensofmajorinfrastructureprojectsisstillpossible(Johnson,2018).Educatingcitizens,particularlyinOntarioandQuebec,astothefinancialbenefitsandtheincrementalsafetyimprovementsofpipelinesshouldbeanongoingprocess.

TheoriginalNEBreviewpaneldrewalotofcriticismfortheirhandlingoftheevaluationofEnergyEast.Asaresult,publictrustoftheassessmentofinter-jurisdictionalpipelineinfrastructurewaseroded.Furthermore,thenewlyappointedpaneladdedambiguousmetricsthatmadeitdifficultforTCPLtoevaluateitschancesofasuccessfuloutcome.Futureevaluationswillneedtobedoneinamannerthatisopenandtransparentwithallstakeholders.

AlthoughtheadditionofupstreamanddownstreamemissionstotheEnergyEastevaluationaddedsignificantuncertaintytotheevaluationprocess,itisunlikelythatthiswouldhaveencumberedthesuccessfuloutcomeoftheapplication.WhileGHGemissionsaregenerallyhigherforoilsandsprojects,extractionhasonlyamarginalimpactonthelifecycleemissionsofhydrocarbonsasthemajorityareproducedduringcombustionbytheenduser.TheNEB’snewfocusaroundupstreamanddownstreamemissionsshouldbefurtherclarifiedtoensurethattheevaluationofapipelineisnotmisinterpretedasawiderdiscussiononsociety’suseofhydrocarbons.

Canadashouldnotexemptimportedgoodsfromthesamestandardsthatitplacesonmanufacturersandproducersunderitsjurisdiction.Attheveryleast,acarbontaxshouldbeappliedtocrudeimports,especiallywhenwesternCanadaproducersareliableforthisburden.Buildingoffthisconcept,ametricshouldalsobeplacedontheCanadianvalues,includingsocial,safetyandenvironmentalconsiderations.Whereforeigngoodsorcommoditiesareproducedmorecheaplybycircumventingorexploitingtheseconsiderations,anentrytaxortariffshouldbeimplemented.Underthisapproach,westernCanadiancrude—whichwouldnotbesubjectedtothetax—wouldbecomemorecompetitive;andtherefore,moreattractivetoconsumersineasternprovinces.Untilthisoccurs,therewillcontinuetobelittlefinancialincentiveforeasternCanadarefineriestodeviatefromcrudeimportedfromVenezuela,NigeriaorAzerbaijan.

ShouldEnergyEastproceed,thecostofconstructionwillneedtobecloselymonitored.Atanestimated15.7billionCAD,theresulting$9.28CADperbarreltollapproachesthelimitoftheproject’sviability.Higherpricedtollswouldreducethepipeline’simpactinoffsettinghighercostrailtransportation.

LikelythemostimpactfuloutcomeoftheEnergyEastcancellationisthesignalCanadahassenttoforeigninvestors.ThefederalgovernmentcomplicatedtheassessmentcriteriaimposedontheprojecttodissuadetheEnergyEastprojectfromoccurring.ThiswillincreasetheriskassociatedwithinvestmentinfutureenergyinfrastructureprojectsinCanada.Theunforeseenambiguitythatwasintroducedintothereviewprocess,andtheresulting1billionCADcostassociatedwiththefailedapplicationaddstotheuncertaintyofinvestinginCanada.Longterm,highcapitalcostutilitiessuchaspipelinesareunlikelytoprovidetherequiredprofitstowarrantabsorbingthisaddedregulatoryrisk.However,bipartisancommitmentfromthefederalgovernmentisrequiredtopreventreviewconditionsfromchangingonceanapplicationhasbeenfiled.ThisagreementcouldhelptofacilitaterepairthedamagedonetoCanada’simageintheglobalinvestmentcommunity.

AssumingtheconstructionoftheapprovedLine3,TransMountainexpansionandKeystoneXLpipelines,aswellastheincreasingoilsandsproduction,discussionsshouldstartby2022(earlyscenario)or2032(laterscenario)forCanada’snextinter-jurisdictionalpipeline.Withthesupportofthefederalgovernment,andcommunitiesinOntarioandQuebec,itisnotunrealistictobelievethatEnergyEastmaybecomearealityinthefuture.

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