10-5-17 5:04 PM EDT | Email Article
By Vipal Monga and Austen Hufford 

TORONTO -- TransCanada Corp.'s decision to end development of two Canadian energy pipelines is another setback for Canadian energy producers, who have been clamoring to get their landlocked oil and gas to markets in Europe and Asia and reduce dependence on the U.S.

Pipeline operator TransCanada announced Thursday morning that it pulled the plug on the Energy East and Eastern Mainline pipeline projects amid the continuing slowdown in the oil sector and a tougher regulatory environment.

Chief Executive Officer Russ Girling said the decisions come after "a careful review of changed circumstances."

A company spokesman declined to elaborate on Mr. Girling's remarks. Last month, however, the company said it would review Energy East's viability after Canada's energy regulator widened the scope of its project review to the potential for increased carbon emissions once the oil is shipped to its final destination.

The 4,500-kilometer (roughly 2,800 miles) Energy East pipeline was planned to run from the oil-rich area in Alberta and Saskatchewan to the refineries of eastern Canada and a marine terminal in New Brunswick, carrying about 1.1 million barrels of crude oil a day. The Eastern Mainline project included new natural gas pipeline and compression facilities largely along the company's existing systems in southern Ontario.

The Energy East pipeline could have allowed producers an avenue to ship oil to Europe and potentially as far as India. That would have broadened the market for Canada's oil exports, almost all of which currently go to the U.S., said Jackie Forrest, director of research for Calgary-based ARC Energy Research Institute.

"We don't have diversity of markets," said Ms. Forrest.

According to the Government of Canada's National Energy Board, Canada exported 3.10 million barrels a day in 2016, 99% of which went to the U.S.

As a result of its decision on Thursday to end the projects, TransCanada said it is reviewing the project's 1.3 billion Canadian dollar ($1.04 billion) carrying value and expects to record an estimated $1 billion impairment charge in its fourth quarter.

Investors seemed prepared for the news, as TransCanada's stock was virtually unchanged on Thursday afternoon, trading up 0.14% at $48.91 a share.

TransCanada's decision comes after the Canada's Liberal Party government, led by Prime Minister Justin Trudeau, last year nixed Enbridge Inc.'s proposed Northern Gateway pipeline across the western province of British Columbia. The Gateway pipeline would have moved more than half a million barrels of oil a day, and potentially opened up Chinese markets to Canadian crude.

Canadian oil industry groups were discouraged about TransCanada's announcement.

"We're beholden to the U.S.," said Tim McMillan, president of the Canadian Association of Petroleum Producers, which represents 75 large oil producers from the country. He noted that the U.S. has started to export oil and natural gas, so the Canadian industry is supplying a market that doesn't need its product.

In August, the country's energy regulator said it would widen the scope of its project assessment to incorporate carbon emissions from the crude after it left the pipeline.

Typically, the regulator, the National Energy Board, only considered carbon emissions from the construction and operation of the pipeline. The board said it made this change to the scope of its outlook due to public interest in climate change.

Weeks later, TransCanada said it was reviewing whether to proceed with Energy East.

Also hurting the viability of the project, said analysts: prices that have plunged since the company proposed the project in 2014, when oil was trading close to $100 a barrel. The price of oil is now hovering around $50 a barrel, making production and transportation less profitable.

TransCanada's move put Canada's Liberal government on the defensive Thursday. It was under fire from the conservative opposition, which claimed the Trudeau administration's energy policy costs Canada jobs and investment.

"This was a business decision," said Jim Carr, minister of natural resources, characterizing TransCanada's move as motivated by the falling price of oil and slowing growth in production. "Canada is open for business."

He noted that the government has approved Kinder Morgan Inc.'s Trans Mountain pipeline through British Columbia and Enbridge Inc.'s Line 3 pipeline from Alberta to Wisconsin.

Opponents said the TransCanada projects would have increased greenhouse-gas emissions by allowing oil-sands producers, the most greenhouse-gas intensive sources of crude, to ramp up production.

"This is an important day in the fight against climate change in Canada, " said Adam Scott, senior adviser for Oil Change International in a statement. "Realizing that Energy East would never would never be allowed if its full climate impact was accounted for, TransCanada has walked away from the project."

Another pipeline, the Keystone XL project, which got approval from President Donald Trump in March, has struggled to find interested oil producers and refiners. That pipeline, also owned by TransCanada, is planning to ship crude from Canada to the U.S. Gulf Coast.

--Paul Vieira in Ottawa contributed to this article.

Write to Vipal Monga at vipal.monga@wsj.com and Austen Hufford at austen.hufford@wsj.com

 

(END) Dow Jones Newswires

October 05, 2017 17:04 ET (21:04 GMT)

Copyright (c) 2017 Dow Jones & Company, Inc.
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