By Nia Williams and Stephanie Kelly
CALGARY (Reuters) – The expansion of Canada’s Trans Mountain Oil Pipeline (TMX), which will nearly triple the flow of crude from Alberta to Canada’s Pacific coast early next year, will now shake up North American supply by diverting barrels mainly to refiners and shippers. In the US Midwest and Gulf Coast.
Its launch could add $2 a barrel to the price paid by U.S. Midwest refineries, which sit on Canada’s main oil-export line. Plants benefiting from discounted oil include those operated by BP, Citgo Petroleum, Exxon Mobil and Koch Industries’ Flint Hills Resources, analysts said.
“They compete for barrels that are no longer moving through their region,” said a Calgary-based oil trader. The market will have to change.
The long-delayed and controversial Canadian government-owned C$30.9 billion ($22.81 billion) TMX project will begin shipping raw materials early next year, although a last-minute planned route change could delay it by up to nine months.
Once operational, Canada will be able to deliver an additional 590,000 barrels per day (bpd) to Pacific ports for refineries on the US West Coast and Asia.
A few flashes
According to a Reuters analysis of Energy Information Administration data, Canada has supplied the Midwest with almost all of its crude imports since 2019. That left Canadian oil producers vulnerable to steep price cuts or “explosions” whenever pipelines were clogged or ruptured.
Pipeline operator Enbridge, which transports the bulk of Canada’s 3.8 million bpd of crude to the United States, expects to reduce flows on its Mainline system by 300,000 bpd after TMX opens.
Last December, a drop in Canadian heavy crude from a spill at TC Energy’s 622,000 bpd Keystone pipeline pushed U.S. oil to more than $33 a barrel, more than double the usual discount.
Having plenty of Canadian export pipeline capacity means that crude bottlenecks build up in the Alberta storage hub, Hardisty said, not happening as often, reducing volatility and keeping prices up.
“For a decade, the U.S. Midwest could count on an explosion like this every year or two,” said Rory Johnston, founder of the Commodity Context newspaper. “That’s less now.”
He estimates the launch of TMX could add “a factor or two” to barrel prices for Midwest refineries.
Gulf Coast re-exports closed.
TMX would also make Canadian crude “re-exports” less viable from the Gulf Coast, bucking a trend that has improved in recent years, and increase shipments of Canadian oil to China, said U.S. oil analyst Matt Smith. Kepler.
So far this year, more than 200,000 bpd of Canadian crude has been exported from the U.S. Gulf Coast, up from 73,000 bpd in 2019, according to Kepler data. China is currently the top destination for these Canadian re-exports, taking 194,000 bpd in August.
Heavy Canadian crude still goes to the U.S. Gulf to be used by refiners there, Smith added, and the region could see an increase in Latin American crude being displaced from the U.S. West Coast by TMX barrels.
($1 = 1.3549 Canadian dollars)
(Reporting by Stephanie Kelly and Nia Williams; Additional reporting by Laura Sanicola; Editing by Margherita Choi)