Trans Mountain oil pipeline expansion pushes rivals to cut rates, for
now
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[September 03, 2024] By
Arathy Somasekhar
HOUSTON (Reuters) - Pipelines that historically carry Canadian crude to
the U.S. are cutting rates and looking to ship different grades of crude
oil due to rising competition from the newly expanded Trans Mountain
pipeline.
The moves will temporarily cut the cost of transporting some of Canada's
heavy crude to the U.S. Midwest and Gulf Coast next month. U.S. imports
of Canadian crude hit a record in July as Trans Mountain expansion (TMX)
volumes grew.
Shipments on TMX started in May, sending up to 890,000 barrels per day
(bpd) to Canada's Pacific Coast. About 80% of the volumes are
contracted, leaving 20% available for spot shipments.
With more oil moving on TMX, Canadian pipeline operator Enbridge said in
August it will cut its tariffs for September by 11% per barrel on heavy
crude moving on its Mainline system. The 3 million-bpd system ships the
bulk of Canada's crude exports from Edmonton to the U.S. and is one of
the main competitors to TMX.
The company is not rationing pipeline space for September for the first
time in over a year, with sufficient capacity available to cover all
nominated barrels.
Enbridge said it anticipates Mainline will be well utilized for the
remainder of the year, attributing the decrease in volumes to routine
oil producer and refiner maintenance.
"We are starting to see the TMX impact play out for the Mainline, and
therefore for systems that carry Canadian barrels to the U.S. Gulf
Coast," said Dylan White, a North American crude markets analyst with
researcher Wood Mackenzie.
Enbridge's 190,000-bpd Spearhead and 720,000-bpd Flanagan South
pipelines that deliver crude from the Mainline to Cushing storage hub in
Oklahoma could likely lose volumes, analysts said. The 950,000-bpd
Seaway, jointly owned by Enbridge and Enterprise Products Partners,
which ships oil from Cushing to the U.S. Gulf Coast, could also see
lower flows.
Seaway and Flanagan pipelines remain well utilized, Enbridge said.
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A signpost sits near Enbridge's Mackinaw facility, servicing the
company's existing underwater Line 5 pipeline and its planned
replacement tunnel through the Straits of Mackinac between Lakes
Michigan and Huron, in Mackinaw City, Michigan, U.S. February 25,
2024. REUTERS/Carlos Osorio/File Photo
Pipelines like MPLX's Capline, a key conduit for Canadian heavy
crude, will likely transport more light crude from the Bakken
oilfield in North Dakota to offset the loss of Canadian heavy
grades, analysts said. The 1.5 million-bpd pipeline was once the
largest crude oil pipeline in the U.S. before it was reversed in
2021 to carry crude oil from north to south. MPLX declined to
comment on Capline product movements.
SHORT-LIVED IMPACT
Delays in TMX's completion provided ample time for Canadian
producers to ramp up supply, and volumes on rival pipelines are
likely to pick up as Canadian oil output is expected to grow
rapidly.
"A combination of TMX coming online later than expected and Canadian
supply ticking higher ... has elevated overall utilization on
broader Canadian outbound pipelines, even as TMX has expanded
overall capacity," Wood Mackenzie's White said.
Output will rise about 500,000 bpd in 2025 from 2023, offsetting the
additional capacity added by TMX, according to analysts from energy
infrastructure firm East Daley Analytics.
Excess pipeline space will be filled relatively soon, said Kristy
Oleszek, director of energy analytics at East Daley.
(Reporting by Arathy Somasekhar in Houston; Editing by Marguerita
Choy)
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