By Arathy Somasekhar
A significant shift is happening in the Canadian crude oil industry as pipelines that traditionally transported crude to the U.S. are now cutting rates and exploring new avenues due to increased competition from the expanded Trans Mountain pipeline.
This move will temporarily reduce the transportation costs of some of Canada's heavy crude to the U.S. Midwest and Gulf Coast in the coming month. The U.S. saw record imports of Canadian crude in July as Trans Mountain expansion volumes continued to grow.
Trans Mountain pipeline began shipping in May, with a capacity of up to 890,000 barrels per day to Canada's Pacific Coast. While 80% of the volumes are under contract, the remaining 20% is available for spot shipments.
With the increasing flow of oil through Trans Mountain, Canadian pipeline operator Enbridge announced an 11% reduction in tariffs for heavy crude moving on its Mainline system in September. This system, which ships the majority of Canada's crude exports to the U.S., is a key competitor to Trans Mountain.
Enbridge is not restricting pipeline capacity for September, marking the first time in over a year that all nominated barrels can be accommodated. The company expects Mainline to be well utilized for the rest of the year, attributing the decrease in volumes to regular maintenance by oil producers and refiners.
Analysts predict that Enbridge's Spearhead and Flanagan pipelines, as well as the Seaway pipeline, may experience lower volumes due to the increased competition from Trans Mountain. Other pipelines like MPLX's Capline could see a shift towards transporting more light crude from the Bakken oilfield to offset the loss of Canadian heavy grades.
Despite the short-term impact on rival pipelines, delays in Trans Mountain's completion have allowed Canadian producers to increase supply. Analysts expect Canadian oil output to grow rapidly, filling excess pipeline capacity in the near future.
Overall, the rise in Canadian oil production is expected to offset the additional capacity added by Trans Mountain, leading to a balanced utilization of pipelines in the region.