October 18, 2017
While telling people that they understand the importance of the pipelines, Notley and Trudeau piled up the regulatory bricks to ensure they were not viable
TransCanada’s withdrawal of its proposal to build the Energy East and Eastern Mainline oil pipelines is a huge loss to Canada and Canadian workers – a $16 billion project regulated to death.
Let’s get the red herring out of the way up front. Yes, the low world price of oil was surely part of this decision, but it’s certainly not all of it. The United States is getting its pipelines built despite the world oil glut.
Rather, a series of events killed these two pipelines. First, while Energy East waited for approval, other pipelines were approved. Keystone XL, the Trans Mountain expansion and Line 3 (assuming it proceeds) are estimated to have capacity to meet export needs out to 2040. Secondly, a cascade of provincial activities including the Alberta carbon tax, the Alberta Climate Action Plan and the oilsands emission cap have hammered investor confidence in Alberta in recent years.
Moreover, a huge investment opportunity opened in the U.S. oil and natural gas sector. Not only is U.S. President Donald Trump not making it harder to develop oil and gas resources in the states, he’s making it easier, opening additional lands, suspending a bunch of onerous regulations, dropping international greenhouse gas obligations, allowing oil exportation and, perhaps, cutting taxes on business.
But the straw that likely broke the camel’s back was the National Energy Board (NEB) announcing it would add an “upstream/downstream” emission test to its project reviews. The upstream/downstream test could seriously reduce the profitability of pipeline projects that would have to, in some way, internalize the costs of the greenhouse emissions resulting from the production and consumption of the oil they transport, not simply those caused by the act of transporting the oil.
These cancelled pipeline projects, to supply eastern Canadians with domestic – rather than imported – oil (while also weakening the U.S. monopoly on Canadian imports), should have been an absolute win-win project for Canada. Eastern Canada imports more than 750,000 barrels per day from the U.S. and OPEC countries. The Energy East pipeline would have carried 1.1 million barrels per day of Canadian oil eastward to Canadians at lower cost while increasing self-reliance. Even if much of the pipeline’s oil was exported, it would still be an economic benefit for Canada with foreign market access that would allow for greater diversity of Canada’s customer base for its oil.
Instead, the death of Energy East/Eastern Mainline casts further doubt on whether Canada is still capable, as a country, of building important national infrastructure of any kind.
And here’s something you likely won’t hear on the evening news. Alberta Premier Rachel Notley and Prime Minister Justin Trudeau deployed a strategy, from the beginning of their terms, to say “yes” to pipeline and oilsands development while governing like they said “no.”
What they actually said “yes” to is a federal price on carbon unmatched by our largest trading partner south of the border.
They’ve said “yes” to a provincial cap on greenhouse gases from the oilsands, casting a huge shadow over investing in new developments that might slam into the cap – again, a restriction unmatched by our global competitors.
Provincially, Canada’s premiers have said “yes” to climate action plans in the major provinces that are little more than tax grabs from energy producers and consumers. And a grab-bag of spending programs that have failed virtually everywhere they’ve been tried.
Is it any wonder that investor confidence in Alberta’s oil and gas sector has plummeted in the last few years? If you were looking to invest your marginal dollar in the energy sector, where would you put it? Canada? Or Texas and North Dakota?
While telling people that they understand the importance of the oilsands, Notley and Trudeau, with assistance from Quebec Premier Philippe Couillard and environmental activists, piled regulatory brick upon regulatory brick on the back of an industry already weakened by a soft world oil price. Watch for crocodile tears over the death of these pipeline projects by the regulators and politicians who made them economically unviable.
Kenneth Green is senior director of the Centre for Natural Resource Studies at the Fraser Institute. Distributed by Troy Media Inc.