CALGARY, Alberta (Reuters) - TransCanada Corp abandoned its C$15.7 billion ($12.52 billion) cross-country Energy East pipeline on Thursday amid mounting regulatory hurdles, dealing a blow to the country’s oil export ambitions.
The demise of the pipeline comes less than a year after the Canadian government rejected another export pipeline, Enbridge Inc’s Northern Gateway, and is a further setback for Canada’s oil industry which is already hurting from low global crude prices.
The vast majority of Canadian crude exports go to the United States, and Energy East would have shipped 1.1 million barrels a day to east coast ports for loading onto tankers destined for higher-priced markets in Europe and Asia.
Concern about limited market access is one of the reasons foreign oil companies have sold off $23 billion in Canadian assets this year, along with high production costs that have made the country’s oil sands unattractive.
“It means reduced (options) for Canada and Canadian oil producers to access global markets and to receive fair pricing for one of our country’s most important export products,” said Brett Harris, spokesman for Canada’s No. 3 oil sands producer Cenovus Energy.
The cancellation heads off a broader political row over the project for Prime Minister Justin Trudeau’s Liberal government, however, which is trying to balance diversifying Canada’s oil export markets with a commitment to tackling climate change.
TransCanada said last month it could abandon the project, weeks after Canada’s National Energy Board (NEB) announced a tougher review process that would take into account indirect greenhouse gas contributions among other factors.
On Thursday TransCanada canceled the plan, citing its review of “changed circumstances” and said it would take a fourth-quarter C$1 billion after-tax non-cash charge.
When it was announced in 2013, Energy East was hailed as a nation-building project that would unlock Canadian exports and boost economic growth along its route.
“The loss of this major project means the loss of thousands of jobs and billions of dollars for Canada, and will significantly impact our country’s ability to access markets for our oil and gas,” the Canadian Energy Pipeline Association (CEPA) said in a statement.
Pipeline supporters and the Alberta government have criticized the NEB for changing its review scope and provincial Premier Rachel Notley urged the regulator to give more clarity on its process.
While Energy East’s collapse may cost Trudeau support in the traditionally conservative oil heartland of Alberta it is likely to prove popular in the eastern province of Quebec, which has far more parliamentary seats and where pipeline opposition from politicians and environmental groups had been stiff.
Canada’s Natural Resources Minister Jim Carr said the cancellation was a business decision and oil markets had changed since the pipeline was first proposed.
Oil prices have roughly halved since 2014.
TransCanada’s decision is also a blow to the ailing economy of New Brunswick province, where the pipeline would have terminated. Premier Brian Gallant said he believed low crude prices had killed the project.
Environmental groups welcomed the decision to scrap a pipeline they said was at odds with Canada’s commitment to reducing greenhouse gas emissions.
Analysts said the decision to abandon it was already priced into the stock. Shares were last up 0.7 percent on the Toronto Stock Exchange at C$61.29. They had fallen 3.2 percent since Aug. 23 - when the NEB expanded the scope of its assessment.
($1 = 1.2540 Canadian dollars)
Additional reporting by David Ljunggren in Ottawa, Solarina Ho in Toronto and Yashaswini Swamynathan in Bengaluru; Editing by Shounak Dasgupta and Susan Thomas
Our Standards: The Thomson Reuters Trust Principles.