Focus: TC Energy to switch to green power to run N. American energy pipelines

Big Sky Industrial

29/07/2021 12:00

(Repeats without changes to additional subscribers)
    By Nia Williams
    CALGARY, Alberta, July 29 (Reuters) - Canadian pipeline
operator TC Energy Corp  TRP.TO  could spend billions of dollars
on its plans to lower emissions by switching to renewable energy
to run its huge network of U.S. and Canadian oil and gas
pipelines.
    Calgary-based TC Energy, which ships oil and gas through
nearly 100,000 kilometres (62,140 miles) of pipelines, one of
the biggest networks in North America, has been encouraged by a
better-than-expected response to a request in April for
information on wind power for projects in the United States.
 urn:newsml:reuters.com:*:nL1N2M51G4
    "We started just with our liquids pipeline and it gives us
really a lot of confidence that we'll be able to pivot quickly
to our natural gas pipeline business both in the U.S. and in
Canada," Corey Hessen, TC Energy's president of power and
storage, told Reuters.
     TC's decision to power pipelines with wind and solar,
instead of natural gas, is similar to smaller-scale plans by
rival Enbridge Inc  ENB.TO  and would go some way toward meeting
investor demands to improve its environmental performance.
    "It's a big prize and it's a really big opportunity," Hessen
said.    
    The project is the best near-term opportunity for TC to play
a part in the energy transition, he said. 
    Energy firms worldwide are trying to reduce the
planet-warming emissions they pump out in the process of
producing and transporting oil and gas. Canada's oil and gas
industry is the country's largest emitting sector. 
    Canada's rising carbon price could add a significant expense
to TC Energy's costs if it fails to reduce its emissions. Canada
has pledged to cut emissions 40-45% from 2005 levels by 2030 and
will hike the price of carbon from C$40 a ton currently to C$170
a ton by 2030. It also charges industrial carbon emitters like
TC under an output-based pricing system. 
    TC's scope 1 and 2 emissions - that is, emissions it
produces or that are produced to supply it with power - from its
oil and gas pipelines were nearly 14 million tonnes in 2019,
according to the company website. 
    TC said it is still in the process of quantifying how many
tons of carbon emissions would be saved by switching to
renewables to power pipelines.
    The company incurred C$69 million ($54.9 million) in
expenses under existing carbon pricing programs in 2019, up from
C$62 million in 2018, according to its latest sustainability
report. TC expects most of its assets across Canada, the United
States and Mexico to eventually come under regulations aimed at
managing carbon emissions.
    "It's in their interest to green their portfolio and start
this strategy now," IHS Markit analyst Kevin Birn said.
    "The world is going to get more aggressive on climate
policies and that means carbon is going to be a cost." 
    Francois Poirier, who became chief executive in January https://www.reuters.com/article/us-tc-energy-moves/canadas-tc-energy-says-insider-poirier-to-take-over-as-ceo-idUSKCN26C1MU,
 has said he wants to use TC's power and storage division, which
includes renewable energy and which he used to oversee, to grow
and diversify the company while also lowering emissions.
    Hessen said the priority for his growing power and storage
team is to secure renewable energy to power TC's network of U.S.
and Canadian pipelines.
    The company received more interest than it expected when it
asked renewable energy developers for information on 620
megawatts of wind-powered electricity to operate part of its
Keystone pipeline, Hessen said. Developers submitted responses
for 14 gigawatts (GW) of wind, more than 20 times TC's need, he
added. urn:newsml:reuters.com:*:nL1N2M51G4
    It would take 5 to 7 GW to power the entire U.S. and
Canadian pipeline network, he estimated. That compares with
total installed wind power capacity in the United States of 118
GW, according to the U.S. Energy Information Administration. 
    BMO Capital Markets estimated in a note to clients that
securing 620 megawatts of wind power would cost around $1
billion in capital investment, which implies the cost of
converting TC's whole U.S. and Canadian network would run to
several billion dollars. 
    Hessen declined to discuss the potential cost for the
renewable energy investment, but said "TC Energy has a history
of really going after and being successful with large-scale
capital deployments for its infrastructure." 
    Some shareholders say they would prefer TC to invest in new
pipelines or return cash to investors, rather than spend money
on powering pipelines with renewables.
    "Is it as good (a use of capital) as investing in pipelines,
acquiring assets, or buying back shares? I suspect probably
not," said Martin Cobb, senior vice president at Lorne Steinberg
Wealth Management, which owns shares in TC.
    Building new pipelines is challenging due to growing
environmental opposition and government policies aimed at
reducing reliance on fossil fuels. TC is seeking $15 billion in
compensation from the U.S. government after Washington revoked a
key permit for its $9 billion Keystone XL (KXL) project earlier
this year. The project had been delayed by over a decade before
TC cancelled it in June.
    Tudor Pickering Holt analyst Matt Taylor said it would be
difficult to replace the anticipated revenue from KXL. TC at one
point estimated KXL would bring in annual pre-tax earnings of
around US$1.3 billion.    
    
    NEW FOCUS
    Some investors are welcoming TC's increasing focus on other
parts of its business after the KXL saga.
    Natural gas pipelines make up 75% of TC's revenues and will
remain its primary revenue-generator. The company will spend the
bulk of its secured capital program through 2024 on that
division.
    The power and storage unit, where CEO Poirier sees potential
for growth, comprises 5% of the company's asset value and
includes a 48.4% stake in Canada's largest nuclear power
station. TC will put C$2.6 billion, or 13%, of its secured
capital spending towards extending the life of the Bruce Power
nuclear plant.
    TC is also looking at developing two hydro-pumped storage
projects in Ontario and Alberta to generate new revenue. The
projects involve pumping water between reservoirs at different
elevations to produce electricity. If they go ahead, the
projects would be the first of their kind built in Canada since
the 1950s.
    Kipp Horton, CEO of WindRiver Power Corp, TC's partner in
the 75-MW Canyon Creek project in Alberta, told Reuters the
companies expect to make a final investment decision this
summer.
    "This is an opportunity, with a new chief executive, to say
this is the new TC Energy. They're still going to be
transporting fossil fuels but are trying to transition to a
greener business," said Brett Girard, portfolio manager at
Liberty International Investment Management, a TC shareholder. 

($1 = 1.2563 Canadian dollars)

 (Reporting by Nia Williams
Editing by Denny Thomas, Simon Webb and Marguerita Choy)
 ((nia.williams@thomsonreuters.com; +1 403 531 1624; Reuters
Messaging: nia.williams.thomsonreuters.com@reuters.net))