So Far Away - Another Setback for Canada's Trans Mountain Expansion and Crude Oil Producers

Western Canada’s Trans Mountain Expansion Project, better-known as TMX, has experienced more than its share of setbacks over the past 10 years: environmental protests, legal challenges, financing issues, an ownership change, and even a serious flooding event in 2021. But it seems the 590-Mb/d expansion of the now-300-Mb/d Trans Mountain Pipeline (TMP) system will finally become a reality by early 2024, enabling large-scale exports of Alberta-sourced crude oil to Asian markets. There’s a catch, though. The project’s long delays and other issues resulted in massive cost overruns that are now being reflected in the preliminary tolls for the soon-to-be-combined Trans Mountain system. The proposed toll increase is so large that it will cost a similar amount to ship heavy crude oil to tidewater on Trans Mountain as it would on the competing Enbridge system to the U.S. Gulf Coast for “re-export,” despite the latter being three times the distance. In today’s blog, we discuss the history of the Trans Mountain expansion, its cost overruns and the calculations that went into the proposed tolls — the kicker being that those tolls could end up being even higher.

The late-August decision by Canada’s Federal Court of Appeal to overturn the Canadian government’s approval of the Trans Mountain Expansion Project will delay the project’s completion to at least 2021 or 2022. And — who knows? — the unanimous ruling may ultimately lead to TMX’s undoing, despite the Canadian government’s acquisition of the existing Trans Mountain Pipeline and the expansion project and its commitment to get TMX built. As producers in the Western Canadian Sedimentary Basin (WCSB) know all too well, TMX’s 590 Mb/d of incremental pipeline capacity would help to resolve ever-worsening pipeline takeaway constraints out of the Alberta oil sands and other production areas in the WCSB. These constraints are having a major economic impact every day — as evidenced by price differentials wide enough to run a locomotive through. Speaking of trains, crude-by-rail exports out of Western Canada reached a record 205 Mb/d in June, an 86% increase from the same month last year, and with WCSB production rising as new oil sands capacity comes online and with only limited relief likely on the pipeline capacity front from the Enbridge Line 3 Replacement Project in late 2019, many producers will need to depend on rail shipments of crude well into the 2020s. Today, we discuss the recent court ruling and what it means for Western Canadian producers, price spreads and the future of crude-by-rail.

Trans Mountain Pipeline, the only pipeline that connects crude oil production areas in Alberta to Canada’s West Coast and the U.S. Pacific Northwest, has started to resume operations after a three-week shutdown. The pipeline closure — the longest in TMP’s 68-year history — began November 14 after major flooding exposed portions of the 300-Mb/d conduit, which also carries some refined products. Fortunately, Trans Mountain did not suffer any severe damage, breaks, or spills, and its operators were able to initiate a phased restart on December 5 at reduced pressures. Full service is expected to be restored soon. So what happens when a primary source of crude oil to five refineries — four in Washington state and one in British Columbia — is removed from service with little notice? In today’s RBN blog, we discuss the impacts.