Canada’s Trans Mountain Extended Oil Pipeline Project Commences Operations

Canada’s Trans Mountain Extended Oil Pipeline Project Commences Operations

Canada’s long-delayed Trans Mountain oil pipeline has commenced operations, after 12 years and a C$34 billion investment.

Pipeline constraints have long been a challenge for Canadian oil producers, forcing them to sell their oil at a discount. However, with the Trans Mountain expansion project (TMX) now in operation, the flow of crude from landlocked Alberta to Canada’s Pacific coast will nearly triple to 890,000 barrels per day (bbl/d).

For Canada, the world’s fourth-biggest oil producer, this additional pipeline capacity is set to boost crude prices, lift national gross domestic product, and expand access to Asian oil markets.

According to Trans Mountain, both the existing pipeline and the expanded one are now able to transport crude oil, and the company has the ability to load cargoes from all three berths. In fact, 70% of the expanded pipeline is already full by volume.

“Everyone has been waiting for this for literally years,” said Rory Johnston, founder of the Commodity Context newsletter. “It’s a fantastic thing for Canada and the Alberta oil patch.”

The expanded pipeline was first proposed in 2012 by Kinder Morgan, one of the largest energy infrastructure companies in North America. The Canadian government bought it in 2018 to ensure the project got built despite opposition, but construction has been marred by regulatory delays and costs soaring to more than four times the project’s original budget.

“It is increasingly difficult to build pipelines in this country and it wouldn’t surprise me if this was the last pipeline,” Jon McKenzie, CEO of oil producer and TMX shipper Cenovus Energy, said on an earnings call.

The Canada Energy Regulator (CER) granted on Tuesday the final permits for the expansion project, clearing the way for the pipeline to start operating. Trans Mountain Corp has announced that May 1 marks the commercial commencement date for the project, and tankers will be able to load at Westridge Marine Terminal in the Port of Vancouver by mid-May.

The TMX is expected to substantially boost Canada’s oil export capacity and could help shrink the discount on benchmark Canadian heavy crude, which is currently around $13.50 a barrel below US crude, to less than $10 a barrel, according to analysts at RBC Capital Markets.

Already, Asian buyers are showing interest. Reliance Industries has bought 2 million barrels (mmbbl) of Canadian crude from Shell for July delivery, marking the Indian refiner’s first oil purchase from TMX, according to Reuters.

Meanwhile, Green groups are concerned about the pipeline’s potential to leak in pristine areas and its expansion of carbon-intensive oil sands crude. Climate activists warn that increasing oil and gas production risks hamstringing Canada’s efforts to cut carbon emissions.

“Trudeau made the decision to purchase this gift for the fossil fuel industry, but it’s these communities and ecosystems that will pay the price when the Trans Mountain pipeline inevitably spills,” said Peter McCartney, climate campaigner at the Wilderness Committee environmental group.

The federal government wants to sell at least part of Trans Mountain to Indigenous groups, but is expected to have to take a major haircut on its investment.

“The Trans Mountain Expansion Project will ensure Canada receives fair market value for our resources while maintaining the highest environmental standards,” said Katherine Cuplinskas, press secretary to Deputy Prime Minister Chrystia Freeland. “The federal government will launch a divestment process in due course.”

According to TD Securities, Canadian oil production is forecast to hit a record high of around 5.3 million bbl/d this year, as producers ramp up output in anticipation of TMX’s new capacity.

Notably, Several major oil producers, including BP Canada Energy Trading Company, Canadian Natural Resources Limited, Cenovus Energy Inc., ConocoPhillips Company, Imperial Oil Limited, MEG Energy Corp., Parkland Corporation, PetroChina Canada Limited, Suncor Energy Marketing Inc., and Marathon Petroleum Canada Trading & Supply ULC, have committed to long-term agreements totaling 80% of the capacity in the expanded Trans Mountain Pipeline.


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