Steel pipe to be used in the oil pipeline construction of the Trans Mountain Expansion Project lies at a stockpile site in Kamloops, B.C., June 18, 2019.DENNIS OWEN/Reuters
The expansion of Canada’s government-owned Trans Mountain pipeline assumes greater importance for the oil sector after the cancellation of rival Keystone XL reduced future options to carry crude, potential buyers say.
Trans Mountain Corp, a government corporation, is spending $12.6-billion to nearly triple pipe capacity to 890,000 barrels per day (bpd), a 14-per-cent increase from current total Canadian capacity.
Prime Minister Justin Trudeau’s government bought the 68-year-old pipeline in 2018 when previous owner Kinder Morgan faced legal hurdles to expand the 1,150-kilometre line running from Alberta to the British Columbia coast. Ottawa has always said it would find new owners.
This week, U.S. President Joe Biden revoked the presidential permit for TC Energy’s Keystone XL pipeline, undoing efforts by former president Donald Trump to build the line that would have supplied U.S. refiners with 830,000 bpd of Canadian oil.
That decision has made the case for completing Trans Mountain’s expansion stronger.
“This pipeline is even more valuable now,” said Joe Dion, chief executive of Western Indigenous Pipeline Group, one of several First Nations groups interested in buying Trans Mountain.
“Everybody thought Trudeau wasn’t going to get things done in Canada, and he’s the one who successfully got a pipeline over Trump.”
Trans Mountain takes on more strategic importance with Keystone XL cancelled, but it does not mean his group would pay more for it, Mr. Dion said.
Trans Mountain has completed 22 per cent of the expansion project, which is scheduled for service in December, 2022. Suncor Energy Inc., Canadian Natural Resources Ltd. and BP PLC are among the committed shippers who have secured 80 per cent of its additional capacity long-term.
“All eyes are on [Trans Mountain],” said Delbert Wapass, executive chair of Project Reconciliation, a First Nations coalition that hopes to buy 51 per cent this year.
Sharing Trans Mountain’s profits would help improve living conditions on First Nations, he said.
Canadian companies have long struggled to secure top price for their crude as pipeline congestion forced them to sell at a discount.
However reduced fuel demand due to pandemic travel lockdowns and advancing pipeline expansions have eased the flow. Even without Keystone XL, Canada may have surplus export pipeline capacity when the Trans Mountain expansion enters service, said Matt Taylor, director of infrastructure research at investment bank Tudor Pickering Holt, who expects modest oil production growth to 2025.
Ottawa plans to sell the pipeline once there are fewer risks to completion and consultations wrap up with First Nations, said Finance Ministry spokeswoman Katherine Cuplinskas. The TRans Mountain expansion has faced stiff opposition over spill concerns.
A second government source said it bought Trans Mountain for its strategic importance, as its Pacific Ocean connection enables shippers to move oil to Asia, as well as the United States, which buys most Canadian crude.
Now its importance is even greater, the source said.
Enbridge Inc., which runs North America’s Mainline oil network, also stands to gain from Keystone XL’s demise. It intends to sell long-term contracts for most of the Mainline’s capacity, pending regulator approval, rather than continue to ration it on the spot market.
Keystone XL’s cancellation frees up long-term commitments by shippers who may now sign Mainline contracts, Mr. Taylor said.
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