Canada's long-delayed Trans Mountain oil pipeline starts operations (updated)

Canada Energy Partners

01/05/2024 14:49

(Adds details from company statement in paragraph 4)
    By Nia Williams
       May 1 (Reuters) - After 12 years and C$34 billion ($25
billion), Canada's Trans Mountain pipeline expansion project
(TMX) began commercial oil shipments on Wednesday, a major
milestone expected to transform access to global markets for the
country's producers.
    Pipeline constraints have forced Canadian oil producers to
sell oil at a discount for many years, but TMX will nearly
triple the flow of crude from landlocked Alberta to Canada's
Pacific coast to 890,000 barrels per day (bpd).
    For Canada, the world's fourth-biggest oil producer, the
additional pipeline capacity is set to boost crude prices, lift
national gross domestic product and open up access to Asian oil
markets. 
    Both existing and expanded pipelines are now able to
transport crude oil and the company has the ability to load
cargoes from all three berths, Trans Mountain said in a press
release, adding that 70% of the expanded pipeline is full by
volume.
    "It's an exciting day. 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 by Kinder Morgan
 KMI.N  in 2012. It was bought by the Canadian government in
2018 to ensure the controversial project got built, but
construction has been marred by regulatory delays and costs
soaring to more than four times the project's original budget.  
 
    The Canada Energy Regulator (CER) granted the final permits
for the expansion project on Tuesday, clearing the way for the
pipeline to start operating.
    Trans Mountain Corp has said May 1 marks the commercial
commencement date for the project when oil will begin flowing,
but does not expect the first tanker to load at Westridge Marine
Terminal in the Port of Vancouver until the second half of May. 
  
    
    EXPORT OPTIONS
    TMX will substantially boost Canada's oil export capacity
and could help shrink the discount on benchmark Canadian heavy
crude, currently around $13.50 a barrel below U.S. crude, to
less than $10 a barrel, analysts at RBC Capital Markets said in
a note to clients.
    Asian buyers are already showing interest in Canadian crude.
    Reliance Industries  RELI.NS  has bought 2 million barrels
of Canadian crude from Shell for July delivery, marking the
Indian refiner's first oil purchase from TMX, Reuters reported
this week.
    For Ottawa, the project's completion comes as a relief.
Prime Minister Justin Trudeau's Liberal government was slammed
by environmental campaigners for buying the pipeline in the
first place, and has drawn sharp criticism during the
construction process for spiralling costs.
    Green groups worry about the pipeline's potential to cause
spills in pristine areas and its expansion of carbon-intensive
oil sands crude, while climate activists warn increasing oil and
gas production risks hamstringing Canada's efforts to cut
greenhouse gas emissions.
    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."
    Canadian oil production is forecast to hit a record high of
around 5.3 million bpd this year, according to TD Securities, as
producers ramp up output in anticipation of TMX's new capacity.
    Two traders in Calgary said oil inventories in Alberta are
brimming at record levels of 42 million barrels, but expected to
draw down reasonably quickly once the expanded pipeline starts
flowing.   
    "The completion of TMX is monumental for Alberta, since this
will significantly increase our province's output," Alberta
premier Danielle Smith said in a statement on Tuesday.
    Conservative premier Smith is a frequent critic of Trudeau's
Liberals but thanked the federal government for seeing the
project through, and said stronger Canadian crude prices would
result in many millions of dollars extra in government revenues.
    "This is a game changer for Alberta," she said.
($1 = 1.3778 Canadian dollars)

 (Reporting by Nia Williams in British Columbia; Additional
reporting by Harshit Verma in Bengaluru; Editing by Sonali Paul
and Mark Potter)
 ((nia.williams@thomsonreuters.com; +1 403 531 1624; Reuters
Messaging: nia.williams.thomsonreuters.com@reuters.net))