Fresh data coming in has revealed that Canada's newly expanded Trans Mountain pipeline (aka TMX) is indeed delivering on its promise to diversify the country’s crude oil markets. According to data from Vortexa via Bloomberg, Canadian oil producers have shipped about 28 million more barrels of crude off the country’s west coast since the expanded Trans Mountain pipeline kicked off operations in June compared to the corresponding period in 2023.
Meanwhile, shipments from the U.S. Gulf declined by 1.68 million barrels over the timeframe. This encouraging trend proves that TMX is working as intended by lowering the Canadian oil industry’s reliance on US-bound pipelines and American refiners, which forced Canadian producers to accept deeper discounts for their crude as well as leaving them exposed to oil price shocks.
As expected, the vast majority of the TMX crude is headed for the Asian market with nearly two-thirds going to China, India, South Korea and Brunei, with the remainder going to U.S. refiners. China has emerged as TMX’s biggest customer, purchasing 8.24 million more barrels of Canadian crude since June. That figure marks a 11.6 million increase in volume of barrels shipped off Canada’s west coast, along with a reduction of 3.35 million barrels via the Gulf. South Korea was the second biggest buyer, purchasing 3.91 million more barrels via Canada’s west coast, while India took 1.53 million more barrels.
Chinese private refiner Rongsheng Petrochemical purchased two Canadian Access Western Blend (AWB) crude cargoes from ConocoPhillips (NYSE:COP) and Vitol on top of another two AWB cargoes it bought via a tender. Cold Lake and AWB are heavy sour crude containing 3.5-4% sulfur and with API gravity of 21-22 degrees.
South Korean refiner GS Caltex split a 550,000-barrel Cold Lake crude cargo with Japan's top refiner ENEOS, with GS Caltex taking 300,000 barrels while ENEOS will get 250,000 barrels. South Korea's top refiner SK Energy, a unit of SK Innovation, bought a 550,00-barrel cargo from Unipec while Hengyi Petrochemical, a refinery operator in Brunei, also purchased a similar volume of crude from PetroChina Co (OTCPK:PCCYF). All the cargoes were sold at discounts of between $5 and $6 a barrel to ICE Brent.
The expanded TMX pipeline will triple the flow of crude from landlocked Alberta to Canada's Pacific coast to 890,000 barrels per day (bpd). TMX provides Asian refiners an opportunity to diversify their imports while also giving Canadian producers more access to U.S. West Coast and Asian markets. TMX crude exports are expected to clock in at ~350,000-400,000 bpd, and will compete with heavy grades from Latin America and the Middle East. According to Muyu Xu, a senior crude oil analyst at analytics firm Kpler, Cold Lake crude is about $10 per barrel cheaper than Iraq's Basra Heavy for deliveries to China.
"Canada's TMX crude attracts interest from Asian buyers who are keen to secure cheap supplies of heavy grades but do not have access to U.S.-sanctioned Venezuelan crude," XU told Reuters. "It will still take some time for refiners to experiment with and test TMX crude as the first few cargoes have just arrived," she added.
U.S. Gulf Coast Still Important
That said, the U.S. Gulf Coast is likely to continue seeing brisk business in the near future. According to Vortexa analyst Rohit Rathod, the Gulf Coast’s biggest attraction remains the ease of loading very large crude carriers (VLCCs), which can carry up to 2 million barrels of oil, a feature that has helped maintain high levels of Canadian exports from the U.S. Gulf Coast. For instance, India’s Reliance Industries shipped 2 million barrels of Canadian crude via a VLCC in May from Vancouver to its refinery in Jamnagar. In comparison, smaller Aframaxes that typically carry up to 800,000 barrels are limited to loading only about 550,000 barrels at Vancouver due to port draft restrictions.
In other news, the Canadian government is seeking to privatize TMX. Trans Mountain Corp., owner of TMX, is arranging a bond sale to refinance part of its debt ahead of the Canadian government’s eventual sale of the oil pipeline operator. The company had C$25.3 billion ($18.4 billion) debt as of March 31, including credit agreements with a syndicate of lenders containing two facilities totaling C$19 billion.
The Canadian government bought and nationalized the original pipeline from a unit of Kinder Morgan Inc. (NYSE:KMI) in 2018 to ensure that the expansion would be built. In effect, the federal government acquired its corporate owner Trans Mountain, which became a federal Crown corporation with Ottawa framing this decision around the desire to secure a key Canadian asset. TMX ended up witnessing massive cost overruns, with the project costing C$34 billion, more than six times the original estimate.
By Alex Kimani for Oilprice.com
