A growing network of North American pipelines is helping more Canadian crude reach the international markets. And a new line from Canada will enable more shipments to reach a global market short of heavy sour crude.
Debottlenecking existing pipelines has given oil sands producers additional capacity to move their crude to the US and helped strengthen Canadian crude values. Canadian midstream firm Enbridge's Line 3 Replacement Project added 370,000 b/d to the 3.1mn b/d Mainline system from Canada to the US in late 2021. In the US midcontinent, Enbridge's 702,000 b/d Flanagan pipeline has more capacity to move crude further south following the use of drag-reducing agents. And the reversed 200,000 b/d Capline project now allows crude, including Canadian output, to flow from Illinois to Louisiana.
Discounts for Canadian heavy sour WCS in Alberta province have steadily narrowed to $10/bl to Nymex calendar-month average WTI from $30/bl nine months ago following the capacity additions. Increased demand from Cenovus' 150,800 b/d Toledo and 38,000 b/d Superior refineries — which were off line until this spring — has provided a further fillip to WCS values.
Canadian crude has received further support from the expectation that more crude will move west when the federally owned 590,000 b/d Trans Mountain Expansion (TMX) from Edmonton, Alberta, to Burnaby, British Columbia, comes on stream. TMX is expected to be on line in the first quarter of 2024 after delays and regulatory issues that caused costs to swell.
The TMX pipeline is poised to give oil sands operators sufficient export capacity after a number of years of constraints that resulted in space along export lines being rationed. The option of being able to supply the domestic market but also export meaningful amounts of crude to the US west coast — and ultimately target Asia-Pacific destinations — is invaluable for companies considering capital plans in northeast Alberta.
Much of the crude shipped on the new pipeline may be exported mainly to North America in the near term, given its proximity. Californian refiners could increase their intake after importing 82,000 b/d of Canadian crude in June, according to the EIA, the most on record in data going back to 2009. Around 94pc of this total was heavy crude. Californian refiners could turn to Canadian grades such as Cold Lake Blend at the expense of heavy sour streams currently imported from Colombia, Ecuador or Mexico.
Trans-Pacific options
Restrictions on the size of tankers that can load at the TMX terminus could curtail exports to Asia-Pacific. The largest vessel allowed at the marine terminal is an Aframax, with about 750,000 bl of capacity. Such deliveries may look less competitive than shipments of up to 2mn bl on very large crude carriers from the better-equipped exporting region of the US Gulf coast.
Trans-Pacific shipments of heavy sour Canadian crude could also look less appealing compared with cheaper Russian supplies that have been diverted to India and China, following EU sanctions on Russian seaborne crude imports that took effect in December last year.
But Canadian crude shipments could still help offset tightness in the global sour crude market, given current production reductions by Opec+ heavyweights Saudi Arabia and Russia.
Linefill for TMX, amounting to 4.4mn bl, is likely to be required in the fourth quarter of this year, drawing down local inventories. The line will help reduce price shocks that were a hallmark of the Canadian market.
By Brett Holmes
https://www.argusmedia.com/en//news/2469768-new-pipelines-extend-canadian-crudes-reach?backToResults=true
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