The case for the Trans Mountain Pipeline Expansion remains strong as the world enters another year of “exceptional” growth in oil demand, according to industry analysts.
Following nearly two years of global demand exceeding supply, oil inventories are now at the lowest level ever in Europe and Asia, according to a report by IHS Markit. The Trans Mountain Expansion, now expected to be complete in late 2023, will help fill the gap, benefiting Canadians in the process.
“The basis is always the same for me, as it’s been for many years now – that [TMX] gets Canadian oil to Asia. And by getting to Asia you’re getting premium pricing,” says Phil Skolnick, New York-based analyst with Eight Capital.
“From the perspective of what it can do for increased revenues coming out of the oil sands and for Canadian oil, it makes a lot of sense.”
Trans Mountain, which has been operating since 1953, is Canada’s only direct access to global oil markets outside the United States. For the last decade it has been overbooked on a regular basis as producers seek more room on the pipeline than is available to ship oil to customers.
The expansion will result in higher revenues for producers and the Canadian government because global customers will pay more for Canadian oil, says BC-based environmental scientist Blair King.
“It is simply getting paid more for the same product because you can now get it to a market that values it more,” King says. “It is pure cream which requires no further effort once the pipeline is built.”
According to Canada’s Parliamentary Budget Office, an increase of US$5 per barrel for Canadian heavy oil would add $6 billion to Canada’s economy over the course of one year.
Skolnick says that on the global market, the Canadian heavy oil grade called WCS is comparable to Middle East stream Dubai Fateh medium heavy. In November 2021, Dubai Fateh sold for an average of US$14.55 per barrel more than WCS, at US$79.80 per barrel.
Asia represents the biggest potential opportunity for Canadian heavy oil exported through the expanded Trans Mountain pipeline, Skolnick says.
“It’s just an open market; a lot is brand new and it’s continuing to grow with India and the petchem industry in parts of Asia, including China,” he says.
For example, China and Saudi Arabia have reportedly renewed discussions on a deal to build a US$10-billion new refining and petrochemical facility.
“These are hundreds of thousands of barrels a day type projects in terms of what they consume, and they consume a lot of medium and heavy oil. That’s the market that you want to get to,” Skolnick says.
“Ultimately you want to have to have market diversification by getting to the West Coast.”
Canada’s oil producers remain committed to the Trans Mountain Expansion despite an increase in the projected cost to $21.4 billion from $12.6 billion previously.
“We believe the business case for this pipeline remains sound,” Cenovus Energy CEO Alex Pourbaix said in a statement. “Getting this pipeline built will provide a significant boost to the Canadian economy while helping to solidify investor confidence in our oil and gas industry.”
Canada’s federal government, which owns the Trans Mountain Pipeline, expects to announce later this year the next steps in its discussions with Indigenous communities who are seeking an ownership stake in the project.
So far the expansion has signed agreements with 75 Indigenous communities worth more than $580 million, and the project will generate over $2.7 billion in Indigenous-based contract awards. At the end of 2021 there were approximately 12,700 people working across the project.
Suncor Energy CEO Mark Little said the 2021 floods in B.C. are a reminder of how critical the pipeline is to security of energy supply and access to global markets.
“While like everyone we are disappointed in the increased costs and schedule of the Trans Mountain project, we remain fully supportive of this world-class infrastructure project which is vital to Canada’s long-term economic success and energy security.”
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