Earlier this month TransCanada announced that they will no longer be moving forward with their Energy East pipeline. This news comes after Canada’s regulatory agency, the National Energy Board (NEB), expanded the scope of its review to include risks associated with oil spills, as well as upstream and downstream greenhouse gas emissions.
Some have cited the NEB’s regulatory environment as the primary reason for the project’s cancellation. While the regulatory environment has been a significant obstacle for TransCanada, the larger culprit was the current state of the oil market.
In 2013, Western Canadian Select (WCS) averaged $73/bbl with a WTI differential of $24/bbl, and Canadian producers were focused on new outlets for their growing production which they hoped would improve netbacks. The Canadian midstream sector responded with gusto, announcing Energy East and several other projects, each intended to transport volumes from Western Canadian plays to a variety of US and Canadian destinations.
However, the weakened crude price environment has materially lowered the expected outlook for Western Canadian production since the crash, diminishing the need for all projects to move forward.
The following chart compares the Canadian Association of Petroleum Producer’s 2014 production forecast to BTU Analytics’ current forecast, which includes realized volumes in 2016 and 2017, and shows Canada’s current and future pipeline capacity.
Even without Energy East, which is not displayed above, Canadian supply is not on track to keep up with planned takeaway capacity. BTU Analytics forecasts that with the current project lineup and low oil prices, Canadian supply will not approach nameplate capacity through 2021. Energy East would only have widened this gap.
To learn more about BTU Analytics’ Canadian production forecast, check out BTU Analytics’ Upstream Outlook.