(Bloomberg)
The delayed startup of a Canadian government-owned pipeline expansion project is weighing on the country’s heavy crude prices after producers ramped up output before the new capacity to export it has come online.
Heavy Western Canadian Select crude’s discount to West Texas Intermediate grew $2.25 to $27.30 a barrel on Thursday, the widest since Dec. 30, data compiled by Bloomberg show.
Canada’s oil producers had increased output on expectations that the Trans Mountain pipeline expansion — which would triple the system’s export capacity — would be completed this year. But the startup’s delay until early next year has left the region without sufficient shipping capacity, said Tim McKay, president of Canadian Natural Resources Ltd., which boosted daily production by 44,000 barrels in the past year.
In another disruption to project, the Canada Energy Regulator said Thursday that it ordered Trans Mountain to stop work on an 800-meter (2,600-foot) section of the line to correct environmental faults.
The situation has ratcheted up demand for space on other pipelines, including Enbridge Inc.’s Mainline system, Canada’s largest oil-export network. That has prompted Enbridge to ration space on the line, a practice known as apportionment, by the most in more than two years for this month.
“We kind of thought that with the incremental egress happening, we wouldn’t be in a condition where we had high apportionment,” McKay said in an interview.
Trans Mountain — which Prime Minister Justin Trudeau’s government bought in 2018 to save from cancellation — will probably start service in the second quarter, with companies invited to fill the line with oil after the new year, said Drew Zieglgansberger, Cenovus Energy Inc.’s chief commercial officer. The added capacity could shrink the discount for Canadian crude in half, but it will take time for the line to reach normal operations, with “bumpiness” along the way, Zieglgansberger said on an earnings call.
Canadian Natural may ship lighter synthetic crude to the Pacific market through the line, McKay said. For Cenovus, the pipeline may allow the company to sell directly into Asia.
“We do have some intention to get into new markets,” Zieglgansberger said. “We’ve obviously got some good connections and access into Asian markets with some of our offshore role in Asia and China.”
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