The completion of the Trans Mountain Pipeline expansion project in Canada could begin to reduce supplies of Canadian heavy sour crude to the U.S. as early as the fourth quarter, the International Energy Agency said on Friday.
The project, which will increase pipeline capacity from 300,000 b/d to 890,000 b/d and provide access to Pacific Coast shipping terminals in British Columbia, is expected to be completed in the third quarter.
In its August Oil Market Report, IEA said that as startup procedures advance, the pipeline will require about 50,000 b/d of heavy sour crude as line fill progresses over the fourth quarter, “adding to North American heavy sour crude demand.”
When the pipeline begins commercial operations next year, the new Pacific Coast access will allow shipments of Canadian oil to Asian markets, potentially taking an additional 500,000 b/d of heavy sour crude out of the North American market, IEA said.
But shippers have balked at proposed tolls for the pipeline, which at $8-$9/bbl are about double what was expected.
At the same time, Enbridge Inc. has said it is lowering tolls for shippers on its mainline, which conveys Canadian crude to the U.S. This could persuade shippers to continue sending to the U.S. rather than to Asian markets.
The agency said that if the higher Trans Mountain Pipeline tolls are implemented, “a high TMX tariff would improve the netback values of moving crude” to the Gulf Coast.
Canadians have long complained that a lack of access to overseas markets has limited the price their oil gets in the U.S. The prospect of receiving higher prices was one reason the Canadian government in 2018 stepped in to buy the pipeline after the original builder, Kinder Morgan, threatened to cancel the project.
“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,” according to the pipeline expansion website. “Canada will earn more on every barrel of oil that’s piped west compared to those sold to our existing customers in the United States Midwest market, a differential that exists regardless of the price of oil.”
The higher tariffs come as construction delays and court challenges raised the cost of the project to an estimated C$30.9 billion ($23 billion), about four times the original forecast.
Western Canadian Select crude oil differentials this year have ranged from about $10 to $28/bbl below the price of U.S. benchmark West Texas Intermediate crude. In recent weeks, that discount has been in the $14-$16/bbl range.
This content was created by Oil Price Information Service, which is operated by Dow Jones & Co. OPIS is run independently from Dow Jones Newswires and The Wall Street Journal.
–Reporting by Steve Cronin, [email protected]; Editing by Jeff Barber, [email protected]
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