If you were a Canadian oil producer in 2013, Energy East looked like a brilliant idea: converting an underutilized natural gas line into an oil pipeline with a capacity of 1.1 million barrels per day, running straight through Canada to markets that aren’t served by Canadian oil.

Back then, you’ll remember, Canadian crude was selling at a huge discount due to a lack of pipeline access to tidewater. Keystone XL had become a political football in the U.S.; as for Northern Gateway, the less said the better. And an extraordinarily high crude price made the concept look irresistible — even inevitable.

Yes, it was a brilliant idea for the Canadian oil industry … in 2013. But if you’re a Canadian oil producer in 2016, it doesn’t look like such a good idea anymore. It may not be a good idea for another 10 years. If ever.

A few weeks ago, Scotiabank CEO Brian Porter demonstrated how far behind the times Energy East’s supporters are right now. The pipeline, he said, “would be a quick solution to get Canada’s energy to global markets and reduce that discount that Canadian producers face today.”

But the industry doesn’t face that crude price discount today. The spread between the Alberta crude price and the U.S. Gulf Coast price is now lower than the transportation cost to get the oil there. RBN Energy recently reported that spread as $6.50 per barrel. The pipeline cost to get it down there runs between US $7.50 and $10 per barrel.

How can this be? Three years ago, the spread was $30 per barrel — higher than the cost to transport Canadian crude to the Gulf Coast by rail. Today, the spread is lower than the pipeline tariff. What this tells us is that surplus takeaway capacity likely has been created by Enbridge and Transcanada expanding their systems while everyone was watching Keystone XL and Northern Gateway run into political roadblocks.

We have an opportunity here to learn from history for a change. Why not park the Energy East idea for a few years to see how the world unfolds? We have an opportunity here to learn from history for a change. Why not park the Energy East idea for a few years to see how the world unfolds?

Irving’s Bakken rail movements have stopped because they aren’t economic any more — but a lot of U.S. shale oil is now moving into Atlantic Canada by ship from the Gulf Coast. In Quebec, Enbridge’s Line 9 reversal is providing three hundred thousand barrels per day of access to Canadian crude, and a quarter million barrels of Canadian diluted bitumen (dilbit) is delivered by pipeline to the Gulf Coast every day. Enbridge, meanwhile, has another major expansion in the works to de-bottleneck their mainline further to ensure flow out of Edmonton to feed those U.S. lines that have been built.

So it looks like Energy East may not be needed today. What about tomorrow? The National Energy Board’s report Canada’s Energy Future 2016 offers an analysis of where they see the price of oil going. The report forecasts a low-end price of between $48 and $80 per barrel for Brent crude between now and 2040, resulting in slower growth rates in the oilsands than they predict under their higher “base” price forecast.

Using the volumes from this moderated price set and the NEB’s assumptions on existing pipeline capacity, it’s pretty obvious Canada’s oilpatch won’t need any more pipeline capacity until after 2025, assuming Enbridge finishes its expansion in 2019. And even then, the required additional capacity won’t get the industry to five hundred thousand barrels per day by 2040.

And none of this analysis takes into account the actions of governments to combat climate change — how those actions might affect markets, how they might lead to the cancellation of planned projects or those already under construction.

So the business case for Energy East looks shaky at best, leaving us with the other argument offered by its proponents: the “national interest”. Porter went so far as to suggest the federal government consider spending infrastructure dollars on Energy East — a line we may not need.

It’s not like we’ve never spent government money on a pipeline we didn’t need. Enbridge’s Line 9 was built in the “national interest” in 1975 to get Alberta crude from Sarnia to Montreal with federal government guarantees. Soon enough, it was no longer economic to move crude in that direction — and we ended up paying Enbridge $200 million dollars in guarantees during the first 20 years for a line that cost $247 million to build, a line that then went completely idle for a number of years.

Energy East would cost $15 billion.

We have an opportunity here to learn from history for a change. Why not park the Energy East idea for a few years to see how the world unfolds? There’s no need for the Quebec government to pursue an injunction to ensure the pipeline undergoes a provincial environmental review — not if we do the sensible thing and just hit pause on the whole concept.

We could end up spending a lot of time and money, and fostering a lot of interprovincial tensions, for a megaproject that won’t pay.

Ross Belot is a retired Canadian energy industry manager who has been working in global energy markets for decades with a focus on supply and economics. He is a published author, photographer, documentary short filmmaker and is currently enrolled in the MFA program at St. Mary’s College of California.

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