After years of anticipation, the Trans Mountain oil pipeline expansion (TMX) is poised to commence operations in early 2024, heralding a transformative shift in North American oil supplies. The project, set to nearly triple the flow of crude from Alberta to Canada’s Pacific Coast, promises to reshape the market dynamic by diverting substantial volumes away from refineries and exporters in the U.S. Midwest and Gulf Coast.
Major oil players, including BP, Citgo Petroleum, Exxon Mobil, and Koch Industries’ Flint Hills Resources, which have been accustomed to discounted Canadian oil, are bracing for intensified competition in sourcing barrels. A prominent Calgary-based oil trader noted, “They will be competing for barrels that no longer transit through their region, so the market will have to reshuffle.”
The monumental TMX endeavor is underpinned by a significant C$30.9 billion ($22.81 billion) investment from the Canadian Government. This infrastructural feat is expected to augment shipping capacity by an estimated 590,000 barrels per day to Pacific ports, catalyzing heightened demand for heavy sour crude, particularly in refineries on the U.S. West Coast and across Asia.
Presently, Canada channels all its crude imports to the Midwest, rendering crude producers susceptible to profound price disparities or “blowouts” in the event of pipeline congestion or ruptures. Enbridge, the linchpin in shipping Canada’s 3.8 million bpd of crude exports to the U.S., anticipates a 300,000 bpd reduction in flows on its Mainline system with the TMX project’s inception. This surge in export pipeline capacity is poised to mitigate bottlenecks, fostering price stability throughout the sector.
Rory Johnston, founder of the Commodity Context newsletter, underscored the significance of this development, stating, “For a decade, the U.S. Midwest could count on that kind of blowout every year or two. That’s less likely now.”
The commencement of TMX is anticipated to pose challenges for U.S. Gulf Coast operations engaged in re-exporting Canadian crude. The region witnessed an influx of over 200,000 bpd of Canadian crude in 2020. Nevertheless, some Canadian crude may still find its way to Gulf Coast refineries, even amid the shift of Canadian oil towards the Pacific Coast.
Furthermore, TMX barrels may displace Latin American crude from the U.S. West Coast, further accentuating the seismic alterations in North American oil supply dynamics.
In summation, the launch of the Trans Mountain oil pipeline expansion in early 2024 is set to usher in a new era for North American oil supply. The resultant reconfiguration of oil distribution across the continent is poised to stimulate heightened demand for heavy sour crude on the U.S. West Coast and in Asia, accompanied by a promise of enhanced pricing stability for Midwest customers.
Source: Reuters
