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With the first three months of commercial operation now complete, the expanded Trans Mountain pipeline has proven one of the central beliefs of its backers – the mega-project has opened up new trade routes for Canadian oil to Asia.
And as petroleum producers boost output in Western Canada, Trans Mountain officials and industry experts think the federally owned pipeline could fill up faster than was initially expected.
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Since the Trans Mountain expansion (TMX) began commercial operations in May, the operator believes roughly one-third of the shipments out of the corporation’s Westridge Marine Terminal in Burnaby, B.C., have been destined for customers in Asia, mainly in China.
The rest has gone south into the United States, primarily California and Washington state.
Jason Balasch, Trans Mountain Corp.’s vice-president of business development and commercial services, said about 44 tankers were loaded between the May startup and last week.
“That’s a little bit of a surprise, I think, with the amount of Asian vessels right off the hop…That’s fantastic news for us,” Balasch said in an interview last week.
“The strategy is opening a trade route to Asia. And it appears that that has taken hold, even in the first two, three months of operation.”
A report issued Friday by RBC Capital Markets identified California as the main destination for Canadian heavy oil shipped by TMX, with “other trade flows developing.”
RBC said 19 oil tankers left Burnaby last month, some headed for multiple ports, and California accounted for one-half of the total port destinations. (Cargo transfers to other ships also took place.)
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Four tankers were bound for China – double the figures seen in June – and a shipment was tracked destined for South Korea for the first time, the report said. Volumes shipped to Asia rose from one million barrels in June to about 2.9 million barrels last month.
“I think people are going to Asia to establish their market presence there,” Balasch added.
“China had been taking Canadian heavy (crude) off the Gulf Coast and our understanding is that’s dropped significantly…Now, the majority of it’s coming from Westridge.”
The $34-billion project to expand the existing Trans Mountain line, which transports oil from Alberta to the B.C. coast for export, has been in the spotlight for years.
First proposed more than a decade ago, it became the focal point of a fierce national debate over building more pipelines as the oil transportation system out of Western Canada became congested.
The shipping capacity of the existing 1,150-kilometre Trans Mountain pipeline, originally built in 1953, was nearly tripled to 890,000 barrels per day (bpd).
In 2018, the Trudeau government agreed to acquire Trans Mountain for $4.4 billion after the private-sector proponent, Texas-based Kinder Morgan, was set to walk away from the expansion.
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One of the central arguments of government and company leaders was that TMX would open up new markets for Canadian oil and improve prices for producers, and revenues for government.
Instead of relying on only one customer – the United States – to buy Canadian oil, often at a steep discount to benchmark U.S. prices, TMX would make Canada a global player in international oil markets.
“It surprises me a little bit that, this early, that much is going to Asia,” said Ian Anderson, the former head of Kinder Morgan Canada and later Trans Mountain Corp., who shepherded the project until he retired in 2022.
“It proves out the thesis — that if you provide the market with the access and the flexibility, it will respond.”
Construction costs on the expansion escalated throughout the years, from $5.4 billion to an expected $34 billion.
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Eugene Kung, a staff lawyer with West Coast Environmental Law, cautioned that there’s only a “small sample size” from the first three months of operating TMX.
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However, he said the cost overruns will likely require a hefty write-down by the federal government to sell the project back to the private sector.
“To me, it just comes back to: Will the money be recovered and who will pay for it?” Kung said.
While critics have questioned the environmental and financial merits of the project, about 80 per cent of its available capacity is locked up with long-term shipping commitments by 11 firms, including Canadian Natural Resources, Cenovus Energy and MEG Energy.
The rest of the capacity is available on an uncommitted, spot basis.
“May was a little lighter, but June, July and August forecasts are all slightly ahead of our fully contracted volume,” added Balasch.
How quickly the line – and all available pipeline capacity out of Western Canada – fills up is a subject of discussion across the industry.
Some estimates predict it could happen within a few years, depending on seasonal factors and global oil demand.
Meanwhile, Canadian oilsands producers are firmly in growth mode.
In June, Alberta oil production averaged 3.9 million bpd, up nearly eight per cent from levels seen a year earlier, ATB Financial said this week.
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Oilsands giant Suncor Energy reported Wednesday its production averaged 803,000 bpd in the first half of the year, an eight per cent jump from a year earlier.
Enbridge’s Mainline system, which moves Western Canadian crude oil to the U.S. and Eastern Canada, remains full, even with TMX starting in May. Enbridge is in talks with customers to increase its capacity by about 150,000 bpd in late 2026 or 2027.
Trans Mountain has fixed contracts to move about 710,000 bpd – the existing pipe transports about 350,000 bpd – which means TMX is already shipping an additional 360,000 bpd by pipeline out of Western Canada.
Production growth in Canada is exceeding expectations, Balasch said, noting analysts have predicted the expanded pipeline would be consistently full within three or four years.
“Our analysis was the same; it’s ’27 or ’28, trending towards earlier, just with all the good news we’ve been hearing lately” from producers, he said.
“Our consistently full date could be moving forward.”
The Trans Mountain expansion is also expected to lower the price differential between Western Canadian Select heavy and U.S. benchmark West Texas Intermediate crude.
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Rory Johnston, founder of the Commodity Context newsletter, said TMX will help prevent some of the deep discounts seen in the past during periods of transportation bottlenecks in Canada, noting the discount sat at US$28 a barrel last November.
Data from ATB showed the differential stood at $14.70 a barrel on Thursday.
“What (TMX) does do, and what it has already likely done, is prevent another chronic and likely blowout of the implied transportation differential,” Johnston said.
He thinks Canadian pipelines could be full again by 2026 or 2027, as TMX allows producers to increase output.
Chris Varcoe is a Calgary Herald columnist.
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