New Brunswick Premier Brian Gallant remains squarely behind the controversial Energy East pipeline project, despite the virtual elimination of the price difference between North American oil and imported crude that provided the $15-billion project with one of its key selling points.
Mr. Gallant travelled to an energy conference in Toronto to give his full backing to Energy East, two weeks after TransCanada Corp. provided the federal regulator with a new submission that could start the clock ticking toward a decision.
"It is important for us to realize that the more we can help the oil industry in the West and throughout the country, the more it will help the economy as a whole," he said in a telephone interview. "And one of the biggest problems facing the oil industry is that they do not have [market] diversity when it comes to their exports."
The Liberal Premier's support for Energy East comes as First Nations in his province complain they have not been adequately consulted, and as federal analysts warn that long-term investments in oil and gas infrastructure "could be at high risk of becoming economically unviable" over the medium- to longer-term as the drive to a low-carbon economy sees renewable energy displace fossil fuels.
When TransCanada and the governments of New Brunswick and Alberta began promoting the Energy East pipeline four years ago, they touted the prospect of eastern refineries displacing expensive imported crude with lower-cost supply from Western Canada, and of producers getting "world prices" for their crude.
At the time, the North American benchmark was selling at a steep discount to international crude such as North Sea Brent, typically between $15 (U.S.) and $20 a barrel but reaching nearly $30 in 2011. The widening spread was the result of booming production of shale oil that could not be exported, creating a surplus in North America. Since crude prices collapsed in 2014 and Washington changed its export policy last year, the differential has virtually disappeared; it was a mere 23 cents a barrel in trading Tuesday.
A Finance Department report from December, 2015, noted the shrinking benefit to Canadian producers from reaching tidewater as a result of the smaller price differential. But it added producers would see lower transportation costs by relying on pipeline rather than rail, according to Bloomberg News, which obtained the document under Access to Information.
Western producers are keen to use Energy East to access foreign markets where refiners are able to process the diluted bitumen that makes up the lion's share of Alberta's production growth. Irving Oil Ltd. – the giant refinery in Saint John – would still benefit from the diversity of supply that Energy East would bring and would partner with TransCanada in a new export terminal at the harbour, Mr. Gallant said.
TransCanada said the shrinking spreads haven't affected support for the pipeline by producers.
"Energy East is supported by our shippers through firm, long-term contracts which demonstrates the need for increased and diversified market access for Western Canadian crude," TransCanada spokesman Tim Duboyce said in an e-mail.
However, the critics argue the long-term viability of oil pipelines is increasingly at risk as the world tries to reduce its dependence on fossil fuels that contribute to climate change. That argument was underscored in a paper produced by Policy Horizons Canada, a federal government think tank whose mandate is to report on emerging trends, risks and opportunities to support policy decisions.
In a paper released under Access to Information, the Policy Horizons group warned that the world's energy landscape "is transforming rapidly" as the cost of renewable sources declines. One clear risk to Canada: "global oil demand could peak earlier and decline further and faster than expected with significant impact on high-cost producers," it said.
This "plausible" scenario "would seem to recommend against long-term investments in oil and gas production, refinement and distribution infrastructure," it said.
Mr. Gallant acknowledged the importance of moving to a lower-carbon economy but said it will take several decades to get there and, in the meantime, Canada needs to exploit the value of its natural resources to boost jobs and the economy.