Page 5 - NorthAmOil Week 06 2022

NorthAmOil COMMENTARY NorthAmOil

The Trans Mountain
expansion has been hit
with more delays and
cost overruns.

reported to be going primarily to India, China pipeline project that would have connected the
and South Korea. oil sands to the US – TC Energy’s Keystone XL
Producers benefiting from these increased – was cancelled by US President Joe Biden last
exports via the Gulf include MEG Energy, year.
Cenovus Energy and – to a lesser extent – Sun- Beyond this year, though, oil sands produc-
cor Energy, according to a Tudor, Pickering, ers will have another, more direct route to Asian
Holt & Co. (TPH) analyst, Matt Murphy, who markets thanks to the start-up of the Trans
was cited by Reuters. Indeed, MEG expects Mountain pipeline expansion between Alberta
roughly two-thirds of its anticipated 2022 out- and the British Columbia coast.
put of 95,000 bpd to be sold into the Gulf Coast. The Trans Mountain expansion, which is
The most prominent beneficiaries have ded- owned by Canada’s federal government, was
icated capacity on pipelines carrying Canadian previously expected to start up in December
crude across the border to the US. Murphy 2022. However, the Financial Post reported last
noted that the Canadian oil industry more week, citing sources familiar with the matter,
broadly was benefiting too as increased over- that the project was months behind schedule
seas demand helped to strengthen crude prices and now unlikely to be completed until some-
in the country. time in 2023. The costs of the project are also
“As we get more exposure to global markets reported to be escalating, and it is now expected The additional
that’s backing up into Western Canada,” Mur- to cost more than CAD17bn ($13.4bn), up from
phy was quoted as saying. “The industry as a a previous estimate of CAD12.6bn ($9.9bn) in flows of Canadian
whole benefits.” 2020. crude to the Gulf
The delays and cost overruns have been
Constraints attributed to disruptions caused by volatile Coast come at
Some constraints remain, though. In a note weather, as well as the pandemic.
published this week, Capital Economics’ senior Nonetheless, the expansion will nearly tri- a time when oil
Canada economist, Stephen Brown, said that ple Trans Mountain’s capacity to 890,000 bpd,
there was “little supply response to rising prices” and Canada’s oil and gas industry considers it sands production
owing to pipeline capacity constraints. As a imperative that the project is completed if the is also at record
result, Canadian oil production remains close country’s oil output is to grow further.
to 2018 levels even with record oil sands output. “Trans Mountain remains key,” the Explorers highs.
“With export capacity out of their hands, and Producers Association of Canada’s pres-
producers have been using their income to ident, Tristan Goodman, was quoted by the
pay down debt rather than invest,” Brown said, Financial Post as saying. The newspaper also
noting that energy sector capital expenditures quoted a vice-president with the Canadian
accounted for 0.3% of GDP – less than a third Association of Petroleum Producers, Ben Brun-
of 2014 levels. nen, as saying the Trans Mountain expansion
This does not appear likely to change this would “continue to be a very strategic and sig-
year, given the limited scope for starting up new nificant development for our industry, in terms
oil pipeline capacity. Indeed, another major of gaining access to new markets”.™

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