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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. 

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Trans Mountain Expansion: A Game-Changer for Canadian Oil Prices

  • The Federal Government of Canada bought the Trans Mountain Pipeline Expansion from Kinder Morgan back in 2018.
  • The expanded pipeline is tripling the capacity of the original pipeline to 890,000 barrels per day.
  • The rise in pipeline egress is set to boost the price of Western Canada Select (WCS), the benchmark for Canadian heavy crude sold at Hardisty in Alberta.
Canada rig

The Trans Mountain Expansion Project, now finally completed after years of delays, is expanding access to markets for Canadian oil producers and is set to boost the price of Canada’s heavy crude oil for years to come, top executives at the major energy firms say.

The expanded pipeline is tripling the capacity of the original pipeline to 890,000 barrels per day (bpd) from 300,000 bpd to carry crude from Alberta’s oil sands to British Columbia on the Pacific Coast. 

The Federal Government of Canada bought the Trans Mountain Pipeline Expansion (TMX) from Kinder Morgan back in 2018, together with related pipeline and terminal assets. That cost the federal government $3.3 billion (C$4.5 billion) at the time. Since then, the costs for the pipeline expansion have soared to nearly $23 billion (C$30.9 billion).

Regulatory hurdles have added years to the timeline for the pipeline completion, but TMX received the final permits in early May from the Canada Energy Regulator (CER). This allowed it to enter into service on May 1. 

Canada’s Takeaway Capacity Grows

The expanded pipeline provides increased transportation capacity for Canadian producers to get their oil out of Alberta and into the Pacific Coast and then to the U.S. West Coast or Asian markets.

The rise in pipeline egress is set to boost the price of Western Canada Select (WCS), the benchmark for Canadian heavy crude sold at Hardisty in Alberta, as it will narrow the discount at which WCS has traded in recent years relative to the U.S. crude oil benchmark, West Texas Intermediate (WTI). Related: Governments Deliver Blow To EV Darlings

Over the past decade, there have been periods of time when WCS traded at discounts of about $40 per barrel below WTI due to a lack of enough pipeline capacity to take rising Canadian crude oil production out of Alberta. Such was the case in 2018 and 2019, when high production but insufficient takeaway capacity were depressing Canadian heavy crude prices, limiting profits for producers even as they boosted their output amid higher global oil prices and strong oil demand.

With TMX now in service, producers see more options to get their crude to demand centers.

Higher Canadian Oil Prices ‘For Years’

While the biggest Canadian oil producers reported a mixed bag of Q1 earnings this spring, all of them expect TMX to boost Canada’s oil prices and to be a major asset for the industry for years to come.

MEG Energy, for example, sees the expanded pipeline raising Alberta’s crude prices “for years” to come, executives said on the company’s earnings call this week.

“It is great for industry and Canada to have that tremendous asset available,” Erik Alson, MEG’s Vice President of Marketing, said.

The narrowing of the WCS-WTI differential will be a long-term trend, the executive added.

“With this critical infrastructure now complete, we anticipate light-heavy differentials will remain narrow for years,” Alson told analysts, as carried by The Canadian Press.

Canadian Natural Resources, the top oil and gas producer in Canada, also expects TMX to provide “ample egress and optionality for our crude oil products.”

Canadian Natural has optionality for crude oil exports, including 94,000 barrels per day (bpd) on the Trans Mountain Expansion pipeline that creates additional crude oil market diversification opportunities on the West Coast, both by land and by water.

“After the Trans Mountain Expansion pipeline is finished, crude oil products will have plenty of egress and optionality,” executives said.

Canadian Natural’s president, Scott Stauth, told analysts that the company had secured some marine sales from TMX. Some of the sales “may end up going marine side still onto the West Coast, or it could move to Asian markets,” Stauth added.

Drew Zieglgansberger, Executive Vice-President and Chief Commercial Officer at another major producer, Cenovus Energy, said, “We’re pretty excited on behalf of the industry and Canada to have another great asset available to us.”

“There’s a pretty vast market out there, which is exciting,” Zieglgansberger told analysts on the company’s Q1 earnings call.

The industry as a whole and the province of Alberta also view the TMX start-up as a boon to the Canadian oil sector.

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“With improved access to global markets, Canadians can look forward to receiving higher value for our energy resources, meaning more money coming back into the economy,” Lisa Baiton, President and CEO of the Canadian Association of Petroleum Producers (CAPP), said.

“As the world undergoes rapid and sometimes violent geopolitical realignments, safe and reliable oil and gas supplies will be a priority for governments for years to come,” Baiton noted.  

“The completion of the Trans Mountain Expansion will help Canada play an enduring strategic role in ensuring our allies and trading partners have access to a reliable and trusted source of critical energy.”

Alberta’s government expects narrower discounts for Canadian crude and a surge in oil production in the province, thanks to the expanded Trans Mountain pipeline.

In its 2023-24 Mid-year Fiscal Update and Economic Statement at the end of last year, the government of Alberta said that “The completion of TMX in the second half of 2024 will help bring the differential to around US$14-15/bbl in the next two fiscal years.”

“Increased takeaway capacity will help propel Alberta’s crude oil production from nearly 3.8 million barrels per day (bpd) in 2023 to over four million barrels bpd by 2026,” the provincial government reckons.

By Tsvetana Paraskova for Oilprice.com

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