A revival of Energy East? Here's why that's unlikely
Politicians promote bringing back pipeline project, but commercial and regulatory hurdles are high
In the world of oil pipelines, there's political rhetoric and then there's the reality of dollars and cents.
Provincial premiers may be talking about reviving the proposed Energy East pipeline from Alberta to New Brunswick, but so far, no private company is pitching it.
It's unlikely one will.
"I think it's going to be daunting for any [corporate] board in Canada, given the experience of the last 10 to 15 years, to really take the risk — what I would call the political and regulatory risk," said Dennis McConaghy, a former pipeline executive who worked on Energy East.
Alberta Premier Danielle Smith claimed this week the industry is "dusting off proposals" for pipelines as a possible response to the threat of 25 per cent tariffs on her province's oil exports to the United States.
"If we want to stop being so reliant on a single trading partner, we've got to take down internal trade barriers between Canadian provinces, start looking at how we can do major nation-building projects to our east and west coast," she told reporters.
"Why wouldn't we talk about Energy East?"
Nova Scotia Premier Tim Houston joined the chorus Wednesday.
"I called on the prime minister and the federal government to immediately approve the Energy East project," he said.
New Brunswick Premier Susan Holt was more cautious, saying the idea was worth considering but it also raised "many questions."
First proposed in 2013, the 4,600-kilometre pipeline would have carried crude oil from Alberta across six provinces to an export terminal in Saint John.
Although it was described as a nation-building project to let Irving Oil's refinery process more Canadian crude, the majority of the oil would have been put on freighters and sold overseas.
The proposal was complicated and expensive, but producers in Alberta were desperate.
They'd been stymied by U.S. President Barack Obama's refusal to approve the Keystone XL pipeline — a route to U.S. refineries and export terminals a shorter distance from Alberta.
WATCH | Why reviving the Energy East pipeline is a long shot:
Now Donald Trump's tariff threat has Alberta looking again for alternatives to its preferred markets.
But there are a number of reasons why Energy East is unlikely to see the light of day now.
Most important: no private company or investors are offering to put money on the line.
TransCanada Corp., the proponent of Energy East a decade ago, sold off its oil pipeline division last year.
The new company that was spun off, South Bow Corp., is looking at options "that utilize our existing infrastructure and corridor" to increase Canadian crude to the U.S., spokesperson Solomiya Lyaskovska said this week.
In fact, TransCanada, now renamed TC Energy, was probably the only company that could afford to tackle Energy East thanks to its existing natural gas pipeline network.
The company planned to convert one of those lines to move oil, meaning it would need to build new pipe for less than one-third of the total distance from Alberta to New Brunswick.
"That extra bonus of having the steel there bridged the gap between what would be an otherwise unsustainable or too expensive of a project and made it feasible," said Andrew Leach, an energy economist at the University of Alberta.
No other company had that advantage for such a massive undertaking.
Another pipeline project cancelled around the same time as Energy East, the Northern Gateway line to the British Columbia coast, would be shorter and cheaper.
That matters to pipeline companies.
While opposition politicians have accused the Trudeau government of "killing" Energy East, Leach argues TransCanada cancelled it because simpler, cheaper options became available.
The federal government approved another pipeline to the B.C. coast, the Trans Mountain expansion, in late 2016, and in early 2017, Trump, in his first term in office, said he'd allow Keystone XL to proceed.
Suddenly the costly, long-distance, controversial Energy East wasn't the only option for Alberta oil but the third-best choice — and potentially an unnecessary one, if demand for oil didn't keep growing at the same rate.
Things have changed since then. Joe Biden stopped Keystone XL a second time.
But other obstacles to Energy East remain.
Anyone looking to build it would start the federal regulatory process from scratch.
The approval process is legally required, which is why Houston's demand for Ottawa to "immediately" approve the pipeline is an impossible notion.
And it's another deterrent to risk-averse investors.
"If you were to assume that you wanted to try this again, would you be prepared to take on the Canadian regulatory process that worked so hideously on Energy East in the first place?" McConaghy said.
Even federal Conservative Leader Pierre Poilievre, who supported Energy East, seems to have moved on.
He wants the Irving Oil refinery to stop processing foreign oil, but in a social video last year, he said his policies would make it easier for the company to get more offshore oil from Newfoundland and Labrador.
He didn't mention Alberta.
Poilievre has promised a more industry-friendly approval process for energy projects if he takes power, but McConaghy says investors may still find the risk too high.
A pipeline must be viable for decades to make money for owners and investors, and there's no guarantee a future Canadian government won't impose more stringent climate and environmental policies that would lower oil production.
The former TransCanada executive said the need for Energy East would be clearer if Canada committed to extracting and exporting a lot more oil — a scenario that is not a sure thing given the global push for lower greenhouse gas emissions.
On top of that is continued political opposition to oil pipelines, especially in Quebec, and the duty to consult Indigenous communities — with no guarantees they'd consent.
"The size of these projects and the regulatory and political risk is, I think, a very big barrier," McConaghy said.
Jonathan Wilkinson, the federal natural resources minister, suggested this week that the timeline to get a pipeline built would be considerably longer than the maximum duration of Trump's tariffs.
"President Trump will be in power for four years. Building a pipeline takes a lot longer than that. So anyone who tells you that that's a short-term answer to diversifying energy systems doesn't really understand what they're talking about."
McConaghy said the U.S., where 80 per cent of Canadian oil is shipped, remains "the only viable solution" for Alberta's exports.
But Leach said it's not a given that the U.S. will turn away from Trump's economic nationalism even after the president leaves office.
Energy East may not have a great business case, but "almost anything looks better than a 25 per cent tariff," he said.
Continued tariffs may force the federal government to build a west-east pipeline itself, Leach said — perhaps by passing special legislation to speed up the process, as Ottawa did in the 1950s to get the first cross-Canada natural gas line finished.
"Things that we think of today as being not possible, it's partly because we haven't had that kind of urgency and effort to make it happen."
Whether a Poilievre government — or one led by Liberals Mark Carney or Chrystia Freeland — would ever take on the project is "the question that's up in the air," he said.
"But I do think we have to say that there could be a very different world once you're in a 25 per cent tariff environment."
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