TransCanada (NYSE:TRP) announced this week that it no longer plans to proceed with its proposed Energy East Pipeline and Eastern Mainline projects. While the decision will remove the largest proposed project from its backlog, it's not a surprise given the intense opposition faced by the project and the fact that two approved projects are ahead of it. That said, the loss does diminish the company's growth potential, which is something income-focused investors should keep in mind.

A bold plan B

TransCanada initially proposed building the Energy East Pipeline after running into intense opposition in its attempts to construct the Keystone XL pipeline. The primary sticking point of that project was obtaining a cross-border approval permit with the U.S., where it had become the center of a heated political battle. To avoid that issue, the company proposed building an oil pipeline across Canada, which would enable it to move crude from the oil sands region in the west to refineries in the east as well as export markets in Europe.

A pipeline covered in snow.

Image source: Getty Images.

However, despite choosing a different route, the company still ran into opposition. Utilities, for example, were concerned about the decision to repurpose sections of its mainline gas pipeline that runs across the country, because that would reduce the flow of gas, which could tighten supplies and push prices higher. The company sought to address those concerns by proposing to build the associated Eastern Mainline that would help reduce the impact on gas supplies. However, that didn't stop opposition to the project, especially given the rising worries about global climate change, which many feared would only increase if additional volumes of oil from western Canada could reach more markets. The opposition eventually led Canada's National Energy Board (NEB) to start a fresh review on the project after it voided all previous decisions. Further, the NEB would specifically consider the pipeline's indirect emissions impact in a new analysis.

No longer worth the fight

Instead of continuing to fight for approval, TransCanada has decided that it's no longer worth pursuing, especially since Keystone XL is back on the table thanks to the administration change in the U.S. However, another factor at play, here, is that Canada doesn't seem to need Energy East anymore. That's because lower oil prices have cut deeply into investment spending in the oil sands region, which will result in oil output increasing at a slower pace than previously expected.

Meanwhile, the country recently approved two other pipelines, Kinder Morgan Canada's (TSX:KML) Trans Mountain Pipeline expansion and Enbridge's (NYSE:ENB) Line 3 replacement, which should fully support the expected incremental output through the next decade. According to a projection from the Canadian Association of Petroleum Producers, once the projects from Kinder Morgan Canada and Enbridge come online in late 2019, the country will have about a half million barrels per day of excess capacity. While that spare capacity would slowly diminish in the years that follow as producers ramp up output, Canada should have ample pipeline space through at least 2027. Further, given the current forecast, Canadian oil companies still won't produce enough oil through 2030 to fill up even half of the proposed capacity from both Keystone XL and Energy East, suggesting that the industry will only need one of those projects.

Because of that, TransCanada has chosen to take advantage of the changing political environment in the U.S. to focus its efforts on getting Keystone XL built rather than continuing to battle the opposition for Energy East in Canada. That said, this project isn't a sure thing since TransCanada is still working to secure shippers for the pipeline's capacity, and it needs approval from the state of Nebraska, with a final decision on both anticipated in the next two months.

The longer-term outlook isn't quite as bright

TransCanada currently has 24 billion Canadian dollars ($19 billion) of near-term capital projects underway that should support 8% to 10% annual dividend growth through 2020. However, with the company pulling the plug on the CA15.7 billion ($12.5 billion) Energy East project and also recently canceling its Prince Rupert Gas Transmission project, growth beyond this decade is less clear. Because of that, a lot is riding on the company's ability to move forward with the Keystone XL pipeline, which it will need to help keep up its current dividend growth pace. Even still, the company remains well behind that of Enbridge's forecast to deliver 10% to 12% dividend growth through 2024, which is why its rival remains a better option for income-seekers.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.