Saturday, March 2, 2024

Varcoe: It will not take lengthy to replenish TMX pipeline. What comes subsequent?

Within the longer run, will the dialogue flip again to constructing new pipelines — throughout an period of decarbonization and rising local weather considerations — or will that debate finish with the completion of TMX?

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Dealing with transportation bottlenecks — and a divisive pipeline debate — for years, the Canadian oil business is now eagerly awaiting the startup of the Trans Mountain pipeline growth.

As development on the $30.9-billion venture attracts to a detailed and it’s anticipated to start business operations subsequent quarter, analysts and business leaders anticipate it gained’t be too lengthy earlier than the pipeline — together with different oil export strains in Western Canada — start to replenish.

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After which, the persistent problem of inadequate transportation capability might rear its head, as soon as once more.

“The availability is coming, and in very quick order Western Canada will in all probability be north of 90 per cent (pipeline) utilization charge once more,” mentioned Kevin Birn, a vice-president with S&P World Commodity Insights.

“In the long run, we nonetheless see Western Canada placing plenty of stress on its takeaway system . . . We see it filling up progressively over the subsequent 18 to 24 months. By the top of 2025, the system is trying fairly full.”

On Friday, Calgary-based Enbridge reported that its Mainline pipeline system transported a median of three.2 million barrels per day (bpd) in the course of the fourth quarter, an all-time excessive.

Even with the Trans Mountain growth coming on-line this yr, the Mainline system is predicted to ship about three million bpd in 2024.

“The Mainline has been mainly full for 75 years. So, it’s a pattern that continues,” Colin Gruending, Enbridge’s president of liquids pipelines, advised analysts Friday on a convention name.

Western Canadian petroleum producers have grappled with transportation constraints for years amid surging oilsands manufacturing.

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An aerial view of the Imperial Oil Strathcona refinery with the Kinder Morgan and Enbridge oil terminals at Edmonton in 2011
FILE PHOTO: An aerial view of the Imperial Oil Strathcona refinery with the Kinder Morgan and Enbridge oil terminals within the foreground and the Edmonton skyline within the background on July 31, 2011. Ryan Jackson/Postmedia

Since 2010, Alberta’s oil output has risen from practically two million bpd to a median of three.8 million bpd final yr, a document degree. Throughout that point, a number of giant pipeline proposals have failed, together with Enbridge’s Northern Gateway improvement and TC Power’s Keystone XL.

Nevertheless, the completion of Enbridge’s Line 3 Substitute Challenge in 2021 added 370,000 bpd of pipeline capability out of Western Canada to america.

The Trans Mountain growth (TMX), which was submitted to the federal vitality regulator in 2013, will nearly triple the present line’s capability by 590,000 bpd.

“We’re quick pipe proper now. As soon as TMX comes on, we are going to doubtless be lengthy (with extra) export capability, in all probability till that 2026 time-frame,” mentioned analyst Nate Heywood of ATB Capital Markets.

“We do assume that pipelines will likely be comparatively full by the mid-decade.”

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Whereas some specialists thought the startup of TMX would reduce into Enbridge’s Mainline volumes with added competitors, Gruending famous provide has “structurally and completely grown” with rising demand in recent times.

In 2023, western Canadian oil provide elevated by 150,000 barrels per day, he famous. This yr, provide will develop by between 250,000 and 300,000 bpd — with one other 200,000 added to the combination subsequent yr.

At instances previously decade, an absence of transportation capability has led to a steep value differential between U.S. benchmark crude and Western Canadian Choose heavy oil.

The low cost reached as excessive as US$50 a barrel at one level in 2018 throughout a interval of pipeline constraint.

(Provincial knowledge signifies the worth differential final yr averaged US$18.65 a barrel.)

“There is no such thing as a doubt we’re going to wish extra pipe inside this decade,” mentioned Tristan Goodman, president of the Explorers and Producers Affiliation of Canada.

“Demand for oil continues to extend on a world foundation, yr after yr after yr.”

Tristan Goodman
Tristan Goodman, president of the Explorers and Producers Affiliation of Canada (EPAC), speaks in the course of the Canadian Affiliation of Power Contractors 2023 drilling forecast luncheon on the Westin Calgary on November 23, 2022. Gavin Younger/Postmedia file

Whereas the Worldwide Power Company has forecast oil demand will peak this decade, it initiatives international consumption will improve by 1.2 million barrels per day this yr, after hitting a document of practically 102 million bpd in 2023.

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Hal Kvisle, former CEO of Trans Canada Pipelines, famous producers in Western Canada have added incremental output in recent times by taking steps to debottleneck oilsands operations, somewhat than constructing new greenfield initiatives.

He expects development will proceed, however doesn’t foresee business gamers proposing main new export pipelines, given the hurdles and federal insurance policies dealing with the sector.

Nevertheless, there may be extra fuel pipeline capability heading east and south that may very well be transformed to maneuver oil, and there’s additionally the potential to maneuver extra oil to the U.S. by practice.

“We might simply add one or two million barrels a day (from) the oilsands by way of new initiatives, however individuals aren’t going to kick off these new initiatives except they’ve some consolation round federal insurance policies and a few consolation there may be going to be pipe to get the oil to market,” mentioned Kvisle.

“I feel we are going to construct extra pipelines and I feel Canadian oilsands manufacturing will develop, however I don’t see any of that occuring within the subsequent 5 years — apart from the little incremental issues.”

Trans Mountain Expansion graphic

As soon as TMX is accomplished, whole pipeline export capability in Canada will attain greater than 4.8 million bpd, Birn mentioned.

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Midstream firms may also proceed to seek out methods to broaden their current techniques with smaller-scale initiatives.

“We really feel the capability egress will likely be pretty balanced . . . but when extra is required, we’ll handle that by optimizing our system,” Enbridge mentioned in an announcement.

“We have now 200,000 bpd of growth potential on the Mainline that entails debottlenecking and small-scale capability additions.”

Within the longer run, will the dialogue flip again to constructing new pipelines — throughout an period of decarbonization and rising local weather considerations — or will that debate finish with the completion of TMX?

“We are going to all the time develop manufacturing if the world needs our manufacturing . . . The issue for me is that after Trans Mountain, I don’t see how anyone goes to construct one other pipeline,” mentioned Richard Masson, former CEO of the Alberta Petroleum Advertising and marketing Fee.

“The long-term reply is we’ve got to discover a steadiness in how shortly we develop, with how a lot market entry we are able to get. It’s a giant problem.”

Chris Varcoe is a Calgary Herald columnist.

cvarcoe@postmedia.com

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