Investment Manager's Insight: Trans Mountain Pipeline Expansion Impacting Canadian Crude Shipments to U.S.
By Arathy Somasekhar
The newly expanded Trans Mountain pipeline is shaking up the traditional routes for Canadian crude shipments to the U.S., leading to rate cuts and changes in transport grades. This shift is expected to temporarily lower transportation costs for heavy crude to the U.S. Midwest and Gulf Coast next month, as imports from Canada hit record highs in July.
Trans Mountain expansion (TMX) volumes have been on the rise since shipments began in May, with Enbridge announcing an 11% tariff cut for heavy crude moving on its Mainline system to the U.S. Gulf Coast in September. This move comes as Enbridge anticipates increased competition from TMX and adjusts its pricing strategy accordingly.
Analysts predict that Enbridge's Spearhead and Flanagan South pipelines, as well as the Seaway pipeline, could see lower volumes due to the increased flow on TMX. This shift is expected to impact pipelines like MPLX's Capline, which may transport more light crude from the Bakken oilfield to compensate for the loss of Canadian heavy grades.
Despite these changes, the impact is likely to be short-lived as Canadian oil output is projected to grow rapidly in the coming years. Analysts forecast a 500,000 bpd increase in output by 2025, offsetting the capacity added by TMX. This growth in production is expected to fill excess pipeline space in the near future, according to energy infrastructure firm East Daley Analytics.
In conclusion, the expansion of the Trans Mountain pipeline is shaking up the Canadian crude market and impacting traditional transport routes to the U.S. While this may lead to temporary cost reductions for heavy crude shipments, the overall outlook remains positive as Canadian oil production is set to increase, filling any gaps left by the changing pipeline dynamics. Investors should keep an eye on these developments as they navigate the shifting landscape of the North American crude market.
