The completion of the Trans Mountain Pipeline expansion project in Canada is set to have far-reaching consequences for the supply of Canadian heavy sour crude to the United States. According to the International Energy Agency (IEA), these effects could be seen as early as the fourth quarter.
With an expected completion date in the third quarter, this project will significantly increase pipeline capacity from 300,000 b/d to 890,000 b/d. It will also grant access to Pacific Coast shipping terminals in British Columbia. As startup procedures progress, the IEA explains that about 50,000 b/d of heavy sour crude will be required for line fill progress over the fourth quarter. This will, in turn, further drive North American heavy sour crude demand.
The commercial operations of the Trans Mountain Pipeline in the following year will allow Canadian oil shipments to Asian markets through the newly established Pacific Coast access. As a result, it is estimated that an additional 500,000 b/d of heavy sour crude will be diverted from the North American market towards Asian markets, as stated by the IEA.
However, concerns have been raised among shippers due to proposed tolls for the pipeline. The toll prices are significantly higher than initially expected, ranging from $8-$9/bbl. This discrepancy has led to uncertainties and hesitations among shippers.
In contrast to these toll increases, Enbridge Inc. has announced that it will lower tolls for shippers on its mainline, which transports Canadian crude to the United States. This adjustment may incentivize shippers to continue sending their crude to the U.S. rather than diverting it towards Asian markets.
According to the IEA, if the higher tolls for the Trans Mountain Pipeline are implemented, a high TMX tariff would enhance the netback values associated with moving crude towards the Gulf Coast.
The completion of the Trans Mountain Pipeline expansion project marks a turning point in the Canadian crude supply landscape. The project's successful implementation will not only address the rising demand for heavy sour crude in North America, but it will also provide new avenues for Canadian oil to reach lucrative Asian markets. Nevertheless, the toll pricing structure and competing alternatives offered by Enbridge Inc. will play a crucial role in shaping the ultimate outcomes and decisions made by shippers.
Canadians Seek Access to Overseas Markets for Better Oil Prices
Canadians have long voiced their concerns about the limited access to overseas markets, which has resulted in lower prices for their oil in the United States. To address this issue, the Canadian government took a significant step in 2018 by purchasing the pipeline project from Kinder Morgan, the original builder, who had considered cancelling it.
According to the pipeline expansion website, "The simple truth is that Canada's oil will fetch a better price if we give ourselves the option of shipping more of it via Trans Mountain's Pacific tidewater terminal." They further state that Canada stands to earn more on every barrel of oil piped west compared to sales made to their existing customers in the United States Midwest market. This price differential persists regardless of the current oil price.
However, the project has faced numerous challenges, such as construction delays and court disputes, causing the estimated cost to balloon to around C$30.9 billion ($23 billion), four times the original forecast.
This year, the differentials for Western Canadian Select crude oil have fluctuated between $10 and $28 per barrel below the price of the U.S. benchmark West Texas Intermediate crude. Recently, this discount has stabilized within the range of $14 to $16 per barrel.