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TransCanada Corp. CEO Russ Girling announces the Energy East pipeline during a news conference in Calgary, Alta., on August 1, 2013. One of the biggest concerns is the impact on the province’s natural-gas markets.

TODD KOROL/REUTERS

TransCanada Corp.'s Energy East pipeline project imposes more risks to Ontario than it offers in benefits, the province's energy regulator said in a report Thursday.

At the request of the Liberal government, the Ontario Energy Board (OEB) spent 18 months in hearings and commissioned a number of consultants' reports on controversial pipeline megaproject, which would deliver 1.1 million barrels a day of Western Canadian crude to eastern refineries and export terminals.

Essentially, the board produced a cost-benefit analysis for the provincial government, which will intervene when the National Energy Board launches hearings into the project, expected next year. Premier Kathleen Wynne has acknowledged federal jurisdiction to decide on the project but, if the OEB opposes the project, her government could create political pressure on the company and on Ottawa.

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"What we have found is that there is an imbalance between the economic and environmental risks of the project and the expected benefits for Ontarians," the board's vice-president Peter Fraser said Wednesday. He said the company could improve that balance by addressing concerns about potential gas shortages as it converts the mainline natural-gas pipe to carry oil, by changing the route where it comes too close to important waterways and by ensuring it employs the most up-to-date technology to prevent and mitigate spills.

One of its biggest concerns was the impact on the province's natural-gas markets. Local utilities claim the reduction of pipeline capacity will drive up costs in Eastern Ontario, although TransCanada pledges to make up for that loss by building a new line from Southern Ontario.

"Our advice is that Ontario needs to be assured that there is sufficient supply [of gas] to meet the needs of consumers throughout Ontario, and that its consumers will not subsidize through higher natural gas prices the cost of Energy East," Mr. Fraser said.

TransCanada has delayed its final submission to the National Energy Board until later this year, as it decides how to proceed in Quebec. After concerns were raised about the effect on endangered belugas, TransCanada cancelled plans to build at export terminal at Cacouna on the St. Lawrence River and is now determining whether to relocate it or scrap it altogether.

TransCanada said it welcomed the provincial report.

"Our team will continue to work closely with the Ontario government to ensure the project meets proven safety standards and environmental protection while delivering important economic benefits for the people of Ontario," François Poirier, TransCanada's president for the Energy East project, said in a statement.

"Energy East represents the safest and least [greenhouse gas]-intensive way of moving Canadian oil to Canadian refineries, helping to make Canada energy independent and reducing the amount of oil being transported through Ontario communities by rail."

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The fate of Energy East has become entwined in the federal election. While the main opposition parties are supportive in principle, New Democratic Party Leader Thomas Mulcair says the environmental review process needs to be strengthened, including efforts to assess the climate impact of building pipelines that would lead to greater oil sands production.

The Ontario Energy Board disappointed environmentalists by concluding the pipeline would have little impact on global greenhouse gas emissions (GHGs), and by suggesting the national discussion on climate change should be held outside the ambit of a pipeline review. For its part, the National Energy Board assesses only the immediate environmental impacts of pipelines during its reviews, but critics want it to include the greenhouse gas emissions that would result from additional oil production in Western Canada.

Th OEB's Mr. Fraser noted that a review done by Vancouver-based Navius Research Inc. concluded the pipeline would have only "modest" impacts on global greenhouse gases since, without it, most of the crude would be produced and shipped by rail.

However, that analysis was based on a forecast of high oil prices. Environmentalists argue that, when crude prices are low, producers can't afford the more costly rail option and so the fate of the pipeline has more impact on production levels.

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