TransCanada Corp. killed its controversial $15.7-billion Energy East pipeline proposal Thursday, provoking a bitter East-West battle over the Liberal government’s energy and environment policies.

In a terse statement, TransCanada said it reviewed “changed circumstances” and will pull the plug on the pipeline, which was designed to carry 1.1-million barrels a day of Western crude to Eastern refineries and export terminals.

Since it was unveiled four years ago, Energy East has been a lightning rod for East-West tensions. Staunch opposition in Quebec sparked denunciations from Western Canadians over Quebeckers’ perceived double-standards regarding domestic and imported oil.

In reaction to TransCanada’s announcement Thursday, some Western politicians questioned their ongoing support for equalization and the nature of Canada’s federation.

“Something needs to change,” Saskatchewan Premier Brad Wall wrote on Facebook. “For the West to continue on like this in our federal system is the equivalent of having Stockholm syndrome.” He blamed Prime Minister Justin Trudeau for the project’s demise.

The cancellation of Energy East will intensify the debate over Kinder Morgan Inc.’s Trans Mountain expansion project, which would dramatically expand oil export capacity to the Pacific Rim markets. The Liberal government approved that project last November, but it is now being challenged in court by the British Columbia government, environmental groups and First Nations communities.

TransCanada telegraphed its Energy East decision last month when it asked the National Energy Board to halt its regulatory hearings so that the company could review the board’s recently announced plan to assess the full range of climate-change-related impacts that would result from the pipeline approval.

The company would not elaborate Thursday on why it decided not to proceed with Energy East.

The Western Canadian industry faces the prospect of slower growth in the oil sands as a result of lower oil prices and decisions of major international oil companies to cancel investment plans. As well, TransCanada saw a revival of its Keystone XL pipeline, which would carry 830,000 barrels a day of crude from Alberta to the U.S. Gulf Coast, and is seen as something of a competitor to the Energy East project.

Despite the political fireworks, many industry analysts were anticipating the Energy East cancellation.

There is more confidence the once-moribund Keystone XL pipeline will receive final state approval after U.S. President Donald Trump okayed it. And producers would be reluctant to commit to both projects, especially given shrinking growth prospects in the oil sands, AltaCorp Capital Inc. analyst Dirk Lever said.

“I don’t think really anybody in Calgary thought Energy East was actually going to go ahead,” he said. “It was a Plan B.”

While Mr. Trudeau blamed market conditions for the project’s cancellation, Conservative critics slammed the Liberal government for putting regulatory hurdles in front of Canadian producers that are not faced by foreign rivals who sell crude to refineries in Quebec and New Brunswick.

Conservative Party deputy leader Lisa Raitt said the Liberals’ approach to Canada’s energy industry has been “disastrous,” arguing it has resulted in the loss of thousands of jobs and billions of dollars in investment as a result of project cancellations.

However, Mr. Trudeau defended his government’s approach to the energy industry, arguing TransCanada had made a “business decision” and noted his government has approved other pipeline projects to expand oil exports from Western Canada.

“It’s obvious the market conditions have changed fundamentally since Energy East was first proposed,” Mr. Trudeau said. Oil prices were roughly $90 (U.S.) a barrel when the company first broached its plan five years ago, while the drop in prices resulted in the industry lowering its forecast for oil sands production in 2030 by more than one-million barrels a day.

Ms. Raitt echoed complaints in Alberta that Ottawa’s climate-change policies have created burdens on Western crude producers while refineries in Quebec and New Brunswick import oil from countries such as Venezuela and Saudi Arabia – countries that are not imposing greenhouse gas regulations.

Mr. Trudeau “forced Canadian oil companies to comply with standards that are not required for foreign companies,” Ms. Raitt said.

Natural Resources Minister Jim Carr said Ottawa supports the Canadian industry’s effort to diversify its export markets, including the Trans Mountain project. But he said the government will not get involved in a “race to the bottom” by matching environmental policies of Venezuela or Saudi Arabia.

Mr. Carr said the Liberal government had made it clear when it took office nearly two years ago that it would assess pipelines and other major resources projects for their climate-change impacts, and had done so for Trans Mountain and Enbridge Inc.’s Line 3. The new wrinkle was that the National Energy Board would conduct the review as part of its hearing process.

In Alberta, TransCanada’s decision has increased pressure on NDP Premier Rachel Notley, who has been a key ally of Mr. Trudeau in the national plan to impose a price on carbon dioxide emissions. However, Ms. Notley is also a staunch advocate of the oil industry’s effort to diversify its export markets beyond the United States.

In a statement Thursday, the Alberta Premier said she was disappointed over TransCanada’s decision to kill Energy East, which her government had actively supported as a “nation-building project.”

“We understand that [the decision] is driven by a broad range of factors that any responsible business must consider. Nonetheless, this is an unfortunate outcome for Canadians,” Ms. Notley said.

The Premier said the government needs to provide greater certainty regarding the regulatory review process, which the Liberal government is working to update.

However, Alberta conservatives say Ms. Notley’s NDP government needs to be more assertive in its dealings with Ottawa and other provinces, particularly with regard to energy policy. The elated reaction from Montreal Mayor Denis Coderre, who called the cancellation a “victory” and took some credit for the project’s demise, stirred a swift counter-response from United Conservative Party leadership candidates who want to unseat Ms. Notley in the 2019 election. UCP leadership candidate Brian Jean tweeted “equalization is broken. Albertans should owe NOTHING to politicians in Quebec who cheer against our industries.”

Both Mr. Jean and Jason Kenney, another candidate in the UCP leadership race that culminates on Oct. 28, have called for an Alberta referendum on the federal equalization program. They say this could be used as legal leverage for bargaining for a new formula with Ottawa.

On Thursday, Mr. Kenney said Albertans are frustrated that they contribute an outsized share to the federal tax revenues but are met with ambivalence, or worse, when trying to sell more Canadian oil domestically and abroad. He called on Ms. Notley to halt the planned increase to Alberta’s carbon tax to $30 a tonne from the current $20 a tonne, scheduled for Jan. 1.

In New Brunswick, Liberal Premier Brian Gallant, who had lobbied hard for the project he said would bring jobs to his province, said he was let down by Thursday’s news. But Mr. Gallant said he believes TransCanada made the decision based on changes in global market conditions and the lower price of oil. Mr. Gallant said he had received assurances from Ottawa that both the regulatory process for the project and the added greenhouse gas assessment did not represent an insurmountable hurdle for the company.

The Globe and Mail, October 6, 2017