Better Late than Never: Trans Mountain Expansion Completion Imminent

Canada’s Trans Mountain Pipeline Expansion project has faced numerous regulatory hurdles since its proposal in 2013. But, pending outstanding approvals from the Canada Energy Regulator, Trans Mountain expects commercial operation to start May 1. The Expansion is expected to offer some upside for Canadian crude pricing and relief for distribution bottlenecks, with the company expecting to reach full utilization within a few months. Comparatively, the industry originally expected the timeline for consistent full utilization to be four to five years from the start of the project’s commercial operation, but growing oil sands production in Canada has moved the timeline up.

The Expansion consists of the 1,150-km pipeline, which runs from Edmonton, AB to Burnaby, BC. It adds over 600 miles of new pipeline and an additional 590 Mb/d of capacity, bringing the total pipeline capacity to 890 Mb/d. The new pipeline is and will be capable of transporting heavy and light crude, including oil sands crude, which accounted for 34% of all Canadian production in 2023.

Source: Trans Mountain

The Trans Mountain Expansion will increase Canadian producers’ access to the U.S. West Coast and Asian markets, though not to the full extent of the pipeline’s capacity. At the end of the pipeline in Burnaby, BC, exports are facilitated though the Westridge Marine Terminal. Before the Expansion, the terminal could load one Aframax-size vessel, and following the expansion, it will be able to load three Aframax-size ships. Aframax vessels can carry 500–800 Mbbls, and for this reason, the Westridge Marine Terminal may only handle 630 Mb/d of exports at a time, according to Trans Mountain. This limits exports out of the terminal since it takes 18–20 hours to load an Aframax vessel and these vessels are unable to carry the full capacity of the pipeline. Companies can perform ship-to-ship transfers to utilize VLCC vessels (Very Large Crude Carriers) to transport the oil greater distances, but that would add additional time to load the VLCC. The remaining oil can be stored at the Burnaby Terminal, which has a shell capacity of 1.68 MMbbls.

The Trans Mountain Expansion project is expected to impact regional pricing by providing upside for Canadian crude prices. Committed flows on the Expansion will be moved in the $7–9.50/bbl range, whereas the uncommitted rate average is higher at $9–10/bbl. Looking at outright pricing over the last 18 months, Western Canadian Select (WCS) has traded between $48–74/bbl and averaged $66.41/bbl in March 2024. In 4Q23, the WCS-WTI differential averaged ($22.65)/bbl and tightened recently to average ($14.13)/bbl in March 2024. If the pipeline is utilized as expected, the WCS-WTI differential should tighten towards the cost of transport on Trans Mountain; however, transport costs across other pipelines in the region may push the differential slightly wider, as Trans Mountain is no longer the most expensive pipe.

The other pipelines that run out of British Colombia, Enbridge Mainline and Keystone, have historically flowed full since Trans Mountain was the most expensive pipeline in the region. However, the updated tariff rates for the expanded Trans Mountain incentivize the full utilization of the pipeline. Additionally, as the pipeline provides exposure to the Brent market, whereas Enbridge Mainline and Keystone are exposed to WTI, Trans Mountain commands a greater netback than the other pipelines since WTI trades at a discount to Brent. This factor ultimately makes Trans Mountain the most economic shipping option out of Western Canada. As a result, Enbridge Mainline becomes the least economic route, potentially causing a drop in its near-term utilization unless crude production in Western Canada increases to fill Mainline capacity. BTU Analytics forecasts 164 Mb/d of Canadian crude production growth through 2029 and does not expect Enbridge Mainline to be fully utilized in the near term.

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