Oil From the North Country - The Push to Expand Canada-to-Gulf-Coast Crude Oil Pipeline Capacity

U.S. crude oil imported from Western Canada averaged almost 3.6 MMb/d in the first 10 months of 2020 and accounted for 60% of total imports over the period. That’s some growth! Ten years ago, Canada was sending less than 2 MMb/d south and contributing only 21% of total U.S, import volumes. Alberta oil sands producers are planning for more production and export growth through the 2020s, with most of the incremental volumes bound for Midwest and Gulf Coast refineries and export docks. If that happens — and there’s no certainty it will — more north-to-south pipeline capacity through the U.S. heartland will be needed. Today, we continue our series on the efforts to expand or reverse crude oil pipelines between the U.S./Canada border and the Gulf of Mexico.

Sure, there was at least some hope among Keystone XL’s supporters that President Biden might back away from his promise to kill the much-maligned crude oil pipeline project. After all, KXL developer TC Energy had done all it could to make the 1,210-mile project more palatable to the incoming administration by making Canadian First Nation groups partners in the project, reaching a favorable labor agreement with the four U.S. unions that would build the pipeline, and, most recently, committing to invest in renewable energy to power KXL’s pumps and other equipment. But it wasn’t enough, and now, with Biden’s decision to revoke the project’s Presidential Permit, it appears that the Alberta-to-Nebraska pipeline is all but dead, and that Western Canada will need to get by without its 830 Mb/d of southbound capacity. The looming question now is, what does that mean for Alberta’s producers — particularly those that have signed up for more than 500 Mb/d of space on KXL? Today, we discuss what’s ahead.

For most of the past three years, Western Canadian producers have had to deal with crude oil pipeline constraints — takeaway-capacity shortfalls serious enough to spur huge price discounts for the region’s benchmark Western Canadian Select (WCS) that are sufficient to support the higher cost of crude-by-rail alternatives. But things are changing, and fast. WCS prices are at or near historic lows — low enough to convince a number of producers to rein in their capital spending and production. Crude-by-rail use is down, and there’s even space available on the usually maxed-out Enbridge Mainline system, the region’s primary pipeline egress. And wouldn’t you know it, just as production is slipping and constraints are easing, real progress is being made on three big pipeline projects that had long been in limbo: the Line 3 Expansion, the Trans Mountain Expansion (TMX) and Keystone XL. Today, we provide an update on Western Canadian crude takeaway capacity and examine whether the region may — irony of ironies — end up with too much.