TMX crude pipeline seen filling up to 590,000 b/d capacity by end of decade

Western Canadian oil producers have good reason to cheer, as after waiting for decades the 590,000 b/d Trans Mountain Expansion pipeline is scheduled to start up May 1, providing additional egress to the West Coast, access for their heavy barrels to a new market in Asia, and, above all, much-needed relief to the deep price discounts of their crude.

But now new questions are making the rounds in the industry, namely, how long will it take before the basin needs another pipeline, given the pace at which new capacity is planned to be added to the Western Canadian Sedimentary Basin?

"I hear different forecasts on when we will fill up TMX," CEO of Cenovus Energy Jon McKenzie said at the BMO Capital Markets-CAPP Energy Symposium in Toronto April 10. "Some say it is two years and others say it's as many as five or six. But at some point we will fill up TMX, but I don't think anybody will be of the view that we will get another pipeline soon in Western Canada."

As a leading heavy oil producer, Cenovus is a major shipper on TMX with 144,000 b/d, or nearly 24% of total pipeline capacity.

The nine other shippers on the pipeline — BP, Canadian Natural Resources, MEG Energy, ConocoPhillips Canada, Imperial Oil, Marathon Petroleum, Parkland Refining, PetroChina, Suncor — have committed to take 80% capacity under 15-20 year deals.

The remaining 20% volume is reserved for spot shipments, under norms mandated by the Canada Energy Regulator.

TMX is an expansion of the existing 300,000 b/d Trans Mountain Pipeline that moves light and heavy crude barrels from Edmonton in Alberta to a marine export facility at the West Ridge Marine terminal at Burnaby in British Columbia over a total distance of nearly 738 miles.

The Trans Mountain pipeline was initially built in 1953 and TMX will be the first export pipeline to be completed in the WCSB after the startup of Enbridge's Line 3 Replacement project in October 2021 that transports 370,000 b/d of crude oil from Alberta to Superior, Wisconsin.

"Towards the end of this decade, we will probably talk about egress once again," Darlene Gates, COO of fellow producer MEG Energy, said at the same event.

MEG has 20,000 b/d capacity on TMX, Gates said.

With the startup of TMX, Western Canada will have sufficient capacity until the end of 2030, BMO analyst Randy Ollenberger said at the conference.

Western Canada's industry is currently in a "different place following consolidation, and we are down to six oil sands companies who have historically been ravaged by the heavy oil differentials," McKenzie said.

With TMX coming online, producers have an opportunity to reduce their exposure to light/heavy differentials.

WCS at Hardisty, Alberta has been averaging a $12.41/b discount to WTI so far in April, tightening from $14.08/b in March and $25.44/b in November 2023, according to Platts assessments.

Platts is a unit of S&P Global Commodity Insights.

TMX ramp-up

Following startup, it will likely take six to nine months for crude volumes to be ramped up on TMX, Enbridge CFO Patrick Murray said at the same conference, citing its experience from the Line 3 startup.

However, with oil sands production set to grow in the WCSB, Enbridge is working on providing an additional 200,000 b/d of throughput over the short term on its Mainline, Murray said.

S&P Global data shows heavy oil production is estimated to grow by another 500,000 b/d by 2025/26.

"PADD II [US Midwest] demand is underestimated for WCSB heavy barrels," Murray said. "We have concluded talks with shippers for new tolls [on the Mainline] and to accommodate basin growth there will be a need for more capacity."

Enbridge sees 2024 throughput being maintained on the 3 million b/d, 3,000-mile Mainline pipeline system that transports Canadian heavy and light barrels from Edmonton in Alberta to Gretna on the Canadian-US border, where the volumes flow onto Enbridge's Lakehead system that supplies crude oil to refineries in US Midwest and US Gulf Coast, Murray added.

Separately, leading producers like Cenovus and Imperial Oil are pursuing new production opportunities in the hinterland resource-rich areas in northern Alberta.

Cenovus is working through its program to increase production from 800,000 b/d to 950,000 b/d through debottlenecking and brownfield expansions of its flagship Foster Creek, Christina Lake and Sunrise facilities, McKenzie said.

"We have a confidence coming into 2024 and the external environment to generate free cash and returns to our shareholders," Imperial Oil CEO Brad Corson said at the same conference.

The leading oil sands producer, with a commanding position of assets in Alberta's Cold Lake area, is working on increasing production capacity from its Kearl project from some 280,000 b/d to 300,000 b/d, Corson said, noting Imperial is currently steaming the reservoirs for its new 15,000 b/d Grand Rapids project, with production aimed in the second quarter of 2024.

"TMX will be supportive of investments in heavy oil and we would like to grow production," Corson said without indicating Imperial's capacity on the new pipeline.

To support crude shipments, midstream player Gibson Energy is already building two 430,000 barrel storage tanks in Edmonton for Cenovus and has capacity to build two more of similar size, CFO Sean Brown said at the conference.