Published on January 27, 2021
As was widely expected in a Biden win scenario, TC Energy suspended the Keystone XL project, likely putting an end to more than a decade of efforts and over 1$ billion in capital spending. In 2019, we strongly encouraged TC Energy to reassess its long-term strategy in light of the current transition to a low carbon economy, convincing management to publish a climate scenario analysis. Unfortunately, TC Energy’s leadership continued relying on a scenario that is not aligned with a 2 degrees global temperature increase and which has oil and gas continue to dominate the energy landscape [1]. While TC Energy may write off Keystone XL, it seemingly plans on dedicating more than $3 billion of its CapEx to liquid pipelines (2021-2023, Investor Day presentation, Nov. 2020). It is also investing in natural gas which may have more upside relative to oil in the medium term but will likely wind down as renewables and storage become more affordable and as reliable as gas powered electricity.
TC Energy’s new CEO, François Poirier, seems to be taking a more bullish stance on the future of renewables while maintaining that the company needs to remain diversified in terms of energy mix and that its core competency is in linear infrastructure projects. This is a welcome change of tone from the top. TC Energy has an opportunity to truly become a diversified energy company and benefit from a market that spent a record $501 billion in 2020 on renewable power, electric vehicles and other technologies to cut the global energy system’s dependence on fossil fuels, according to Bloomberg NEF.
The decision to suspend the Keystone XL project is yet another signal that the oil sector is not an area of growth for companies and investors. The onus is now on TC Energy to articulate how it can benefit from any future prospects of its remaining liquid pipeline projects or it could signal an intent to exit the sector altogether. TC Energy can turn this “disappointment” into an opportunity to demonstrate a robust long-term strategy to continue creating value in an economy striving to keep the earth from warming past 1.5 Celcius. A good place to start would be to adopt a long-term greenhouse gas reduction target in line with best practices of halving emissions by 2030 and reaching net zero by 2050.
François Meloche, Head of Corporate Engagement
[1] As a November 2020 presentation (World Energy Outlook 2020), TC Energy was still basing its assumptions on the least Paris aligned of the IEA scenarios, the Stated Policies Scenario.