Sat. Sep 23rd, 2023
    New Canada Oil Pipeline Could Shake Up North American Supply

    Canada’s Trans Mountain oil pipeline expansion (TMX) is set to disrupt the flow of crude oil in North America. The project, which will triple the amount of oil transported from Alberta to Canada’s Pacific Coast, will divert barrels that are currently delivered to refiners and exporters in the U.S. Midwest and Gulf Coast. This means that U.S. Midwest oil refineries along Canada’s existing main oil-export route could see prices increase by up to $2 per barrel.

    The startup of the TMX project, which has faced delays and controversy, is expected to begin early next year. Once operational, it will enable Canada to ship an additional 590,000 barrels per day to Pacific ports for delivery to U.S. West Coast and Asia refiners. This is particularly significant as there is expected to be a rise in demand for heavy sour crude in these regions in the longer term.

    Historically, Canada has supplied the Midwest with all of its crude oil imports since 2019. However, this has left Canadian oil producers vulnerable to deep price discounts or “blowouts” when pipelines become congested or rupture. With the increased pipeline capacity provided by TMX, bottlenecks in the Alberta storage hub should occur less frequently, resulting in reduced volatility and more stable prices.

    The TMX project will also impact Canadian crude oil re-exports from the U.S. Gulf Coast. This trend, which has gained momentum in recent years, will likely be suppressed, leading to increased shipments of Canadian oil to China. Furthermore, the Gulf Coast may see an increase in the displacement of Latin American crude due to the availability of TMX barrels on the U.S. West Coast.

    The start-up of TMX could raise the cost of a barrel of oil for Midwest refiners by an estimated “buck or two,” according to oil analyst Rory Johnston. Overall, the pipeline expansion will introduce significant changes to North America’s oil supply dynamics.

    – Nia Williams and Stephanie Kelly. “Canada’s TMX pipeline to shake North America crude oil supply.” Reuters, 8 October 2020.