Analysis: Trans Mountain oil pipeline expansion pushes rivals to cut rates, for now
03/09/2024 11:00
*
Enbridge cuts tariffs by 11% on Mainline system for
September
*
Pipelines to ship alternative grades to offset loss of
Canadian
supply
*
Canadian output expected to grow, filling excess pipeline
space
By Arathy Somasekhar
HOUSTON, Sept 3 (Reuters) - Pipelines that historically
carry Canadian crude to the U.S. are cutting rates and looking
to ship different grades of crude oil due to rising competition
from the newly expanded Trans Mountain pipeline.
The moves will temporarily cut the cost of transporting some
of Canada's heavy crude to the U.S. Midwest and Gulf Coast next
month. U.S. imports of Canadian crude hit a record in July as
Trans Mountain expansion (TMX) volumes grew.
Shipments on TMX started in May, sending up to 890,000
barrels per day (bpd) to Canada's Pacific Coast. About 80% of
the volumes are contracted, leaving 20% available for spot
shipments.
With more oil moving on TMX, Canadian pipeline operator
Enbridge ENB.TO said in August it will cut its tariffs for
September by 11% per barrel on heavy crude moving on its
Mainline system. The 3 million-bpd system ships the bulk of
Canada's crude exports from Edmonton to the U.S. and is one of
the main competitors to TMX.
The company is not rationing pipeline space for September
for the first time in over a year, with sufficient capacity
available to cover all nominated barrels.
Enbridge said it anticipates Mainline will be well utilized
for the remainder of the year, attributing the decrease in
volumes to routine oil producer and refiner maintenance.
"We are starting to see the TMX impact play out for the
Mainline, and therefore for systems that carry Canadian barrels
to the U.S. Gulf Coast," said Dylan White, a North American
crude markets analyst with researcher Wood Mackenzie.
Enbridge's 190,000-bpd Spearhead and 720,000-bpd Flanagan
South pipelines that deliver crude from the Mainline to Cushing
storage hub in Oklahoma could likely lose volumes, analysts
said. The 950,000-bpd Seaway, jointly owned by Enbridge and
Enterprise Products Partners EPD.N , which ships oil from
Cushing to the U.S. Gulf Coast, could also see lower flows.
Seaway and Flanagan pipelines remain well utilized, Enbridge
said.
Pipelines like MPLX's MPLX.N Capline, a key conduit for
Canadian heavy crude, will likely transport more light crude
from the Bakken oilfield in North Dakota to offset the loss of
Canadian heavy grades, analysts said. The 1.5 million-bpd
pipeline was once the largest crude oil pipeline in the U.S.
before it was reversed in 2021 to carry crude oil from north to
south. MPLX declined to comment on Capline product movements.
SHORT-LIVED IMPACT
Delays in TMX's completion provided ample time for Canadian
producers to ramp up supply, and volumes on rival pipelines are
likely to pick up as Canadian oil output is expected to grow
rapidly.
"A combination of TMX coming online later than expected and
Canadian supply ticking higher ... has elevated overall
utilization on broader Canadian outbound pipelines, even as TMX
has expanded overall capacity," Wood Mackenzie's White said.
Output will rise about 500,000 bpd in 2025 from 2023,
offsetting the additional capacity added by TMX, according to
analysts from energy infrastructure firm East Daley Analytics.
Excess pipeline space will be filled relatively soon, said
Kristy Oleszek, director of energy analytics at East Daley.
(Reporting by Arathy Somasekhar in Houston
Editing by Marguerita Choy)
((arathy.s@thomsonreuters.com; +1 832 610 7346; Twitter:
@ArathySom;))