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Canada pushes Trans Mountain pipeline to sell oil to China

Canada pushes Trans Mountain pipeline to sell oil to China thumbnail

As it battles over trade with its big southern neighbor, Canada is looking westward for new markets for its oil.

In the thick of a bitter trade dispute with the United States, the only customer for its crude oil, the Canadian government has opted to buy a pipeline project that will more than double the oil it can send to the West Coast — and then on to new markets in Asia.

While the pipeline project has been moving on its own timeline, the purchase coincidentally comes during one of the thorniest periods in U.S.-Canadian trade relations. Analysts say ironically that should in fact help Canadian Prime Minister Justin Trudeau find some support for the controversial project, which has pit the province of British Columbia against Alberta and has prompted protests across the country.

The construction is slated to begin this summer, but it is opposed by the British Columbia government, local governments, environmental interests and even groups in Washington state. Canada has long sought a pipeline solution, both to the east and west coast, and has so far failed. There is a lot to gain from moving its oil resources outside of North America, including much higher prices and access to the world’s fastest growing market.

Trudeau‘s government late last month announced it would buy Trans Mountain pipeline, its British Columbia terminal and expansion project for about $3.5 billion, after owner Kinder Morgan Canada found the project too risky. Trudeau has said he wants to make sure the pipeline expansion gets built and then sold to a new operator so Canada can send oil on to new customers in Asia.

“We are going to ensure that it gets built so that we can get our resources to new markets,” Trudeau told Bloomberg News.

“If [the pipeline] doesn’t get pushed through, it changes the trajectory of what the Canadian energy industry looks like.” -Michael Tran, energy analyst at RBC

The Canadian government has long said it wants a way to expand its export horizons. The current 715-mile pipeline carries oil to markets on the U.S. West Coast, and the expansion along 610 miles would also provide more oil to the United States, in addition to Asian customers, like China. The pipeline runs from Alberta to Burnaby, a port city in Vancouver suburbs.

“Canada is the fifth largest in production and third-largest oil exporter in the world, after Saudi Arabia and Russia,” said Jackie Forrest, vice president of energy research at Arc Financial Group. She said Canada produces 4.6 million barrels a day and exports 3.8 million barrels a day to the United States. “When we get to be the third-largest exporter, it makes sense to have more than one customer.”

By selling oil into Asia, Canada would immediately benefit from a higher international price and free some of the currently landlocked crude that is also shipped by expensive rail freight to the United States. There have been small intermittent purchases by Asian buyers in the past, but nothing consistent, and the United States is viewed as the current sole customer for Canadian crude.

Forrest said with the government’s purchase, odds have increased for the pipeline’s construction, which would place a second line parallel to an existing one. The enlarged Trans Mountain would be able to transport 890,000 barrels a day, up from 300,000, at a cost of $7.4 billion.

“I think this greatly increases the chances. It’s not for sure, but it’s likely the pipeline gets built. Now with the patient capital of the federal government, I do expect that with them making this type of capital investment, it will eventually get constructed,” she said. “The plan is, construction will start this summer regardless. It seems the government is willing to take that risk and start that construction without all of these challenges not being resolved. The former owner didn’t want to start construction with some of these challenges out there.”

Being owned by the Canadian government should also give the pipeline more sway with the courts. “As a crown corporation, it would have a better standing in these challenges,” she said.

Canada is producing high levels of heavy tar sands oil, and without easy transport, the oil production has turned out to be a glut of crude that sells for about $15 a barrel less than West Texas Intermediate crude in the United States.

“You could argue the timing was intentional, but this was going on well before Nafta [renegotiations],” said Dana Peterson, U.S. and Canada economist at Citigroup. “The Canadian government needs another venue for evacuating oil, and that’s westward. They need another buyer, and that’s Asia.”

Canada’s pipeline expansion

The United States has been sparring with Canada over lumber and dairy products, but the tariff war got a lot bigger when the United States last week slapped tariffs on Canadian and Mexican steel and aluminum. That prompted retaliatory tariffs and has made negotiations toward a revamped North American Free Trade Agreement even trickier.

Oil, and energy in general, has stayed out of the fray between the United States, Canada and Mexico, who are reliant in many ways on each other’s output.

The changing role of the U.S. oil industry has provided an even bigger catalyst for Canada to diversify its customer base. The United States produced a record 10.8 million barrels a day last week and exported about 1.7 million barrels.

“This move by the Canadian government to build the pipeline sets up a future U.S.-Canadian rivalry for Asian market share,” said John Kilduff, partner with Again Capital. “There’s been a lot of pushback on this from a lot of groups. It’s smart to merely expand the existing footprint.”

The pipeline expansion would change the game for Canada’s industry, even though it’s not a huge amount of oil.

“This could be as transformative as the Dakota Access Pipeline has been for the U.S.,” said Kilduff, noting that the pipeline freed barrels from the landlocked Bakken in North Dakota.

Canada also will be helped by the Keystone pipeline, controversial in the United States but finally expected to be built to take Canadian crude through North Dakota and then south to meet an existing pipeline to the U.S. Gulf Coast.

As U.S. production grows, the need to import oil has shrunk. China has surpassed the United States as the biggest energy importer, at more than 8.4 million barrels a day. U.S. oil imports, in weekly government data from last week, amounted to 8.3 million barrels a day, up from 7.6 million barrels a week earlier, but those figures vary and have been declining.

“If [the pipeline] doesn’t get pushed through, it changes the trajectory of what the Canadian energy industry looks like. We talk about how Canada is handicapped by only having one buyer, just sending crude to the U.S. They’re affected by differentials that are very wide,” said Michael Tran, energy analyst at RBC. He said at the start of this week, the differential between West Canada Select crude resulted in a price about $13 less than WTI.

Sparking an oil boom

The pipeline, which could take a couple of years to complete, should be a boon for Alberta’s oil producers. “Today, heavy oil producers are realizing, if you look at the first quarter, they’re getting $10 a barrel less than they should. If all that goes to cash flow, it should help the companies and the value of the companies as well,” Forrest said. The Canadian government would also receive more royalties and tax revenue.

“In a world without pipelines pointing west and moving Canadian oil to places like Asia, they’re held captive to one buyer: the U.S. gulf coast. When you look at where demand growth is coming from, it’s all about Asia. It’s all about China,” said Tran.

“The Canadian energy industry has become a victim of its own success. Canadian production over the past number of years has become extremely prolific. Unfortunately Canada has become hamstrung with a limited amount of takeaway capacity,” said Tran.

Trudeau has been criticized by environmentalists who don’t believe the government should be in the oil business. “Access to new markets across Asia will make us better able to develop responsibly our resources, better able to invest in the kinds of renewables and protections we need,” the prime minister told Bloomberg.

Canada has diverged from the United States in other trade matters, as it remained part of the Trans Pacific Partnership, a pact that includes nations around the Pacific rim, while the United States pulled out.

“I think access to new markets is important to industry and the government. The prices to Asia, minus the transportation costs, means every barrel that goes to Asia would get a higher price than it would in North America. Because of the discount for WTI (West Texas Intermediate), selling it to North America is not nearly as profitable as selling into Asia,” Forrest said.

West Texas Intermediate, trading in the futures market Thursday, was at about $65 per barrel, more than $10 less than Brent crude futures, the international benchmark that reflects the price on the world market.

“If the pipeline gets built, Canada is finally getting a seat at the table. People talk about Canada being an energy superpower, but they’ve never had a seat at the table at what is now the world’s fastest-growing demand center,” Tran said.

CNBC



34 Comments on "Canada pushes Trans Mountain pipeline to sell oil to China"

  1. jawagord on Sat, 9th Jun 2018 1:18 pm 

    The sentence below captures what the pipeline is primarily about and that’s getting more oil to the closest market that pays world prices i.e. the big West coast crude importers – California and Washington State, and then to secondary markets like Asia.

    “The current 715-mile pipeline carries oil to markets on the U.S. West Coast, and the expansion along 610 miles would also provide more oil to the United States,…”

  2. Duncan Idaho on Sat, 9th Jun 2018 1:39 pm 

    Sure, why not?
    We seem to be on course of suicide anyway—
    This just clarifies the process, and speeds it up.

  3. Boat on Sat, 9th Jun 2018 1:45 pm 

    The US doesn’t need more oil from Canada. They net export 3 mbpd and the US only needs net imports 2.7.
    Saudi oil goes to Saudi refineries in the US, Venz oil goes to Venz refineries vin the US. Other than a few tax dollars made all the US gets for those refineries is pollution. I say…shut-em-down. Screw the ungratful world and let them fend for themselves.
    Let the EU and China protect the middle east from itself. Putin will sell you oil….hehe…at $200.

  4. Boat on Sat, 9th Jun 2018 1:50 pm 

    Canada needs a new buyer for it’s oil. Period. Every month the US needs over 100,000 less. By 2020 swapping heavy for light will be the only game left. That will even the trade balance a bit.

  5. MASTERMIND on Sat, 9th Jun 2018 2:12 pm 

    Boat

    I emailed Professor Douglas B Reynolds PhD, Oil and Energy Economics, University of Alaska.
    http://uaf.edu/files/som/REYNOLDS-Doug-2016-CV.pdf

    And I asked him if our upcoming oil shortage will cause an economic collapse?
    https://imgur.com/a/rBtIrfg

    He replied;

    “Yes, it will be like that, but may be worse with other extenuating circumstances such as war or the decline of international trade. Hyperinflation as happened in the Soviet and Post Soviet economy is a certainty.”
    https://imgur.com/a/rktmHdt

  6. Davy on Sat, 9th Jun 2018 2:23 pm 

    “And I asked him if our upcoming oil shortage will cause an economic collapse?”

    define upcoming please

  7. MASTERMIND on Sat, 9th Jun 2018 2:31 pm 

    Davy

    I did if you would read the link below that statement..Its likely to occur in next few years..1-5 give or take..

    https://imgur.com/a/rBtIrfg

  8. Boat on Sat, 9th Jun 2018 2:50 pm 

    Mm

    Your just talking out your ass. All those scenerios are undefined and pure speculation. N America could for example set it’s own energy prices independent from the world. We are energy independent you should know.

  9. Davy on Sat, 9th Jun 2018 2:57 pm 

    “1-5 give or take..”

    Translation: I have no friggen clue

  10. Boat on Sat, 9th Jun 2018 2:58 pm 

    No more need to prop up the middle east or keep oil flowing. I would gradually cut trade with any country that is not in balance or trades with countries like N Korea, Syria, Iran, Russia, etc. Bring the demand for products back home.

  11. MASTERMIND on Sat, 9th Jun 2018 3:11 pm 

    Davy

    Yes we do have a clue..You dumb little pussy..the IEA, Saudi’s, HSBC,Citigroup and former head of the EIA all are saying around 2020..

    https://imgur.com/a/rBtIrfg

    IEA Chief warns of world oil shortages by 2020 as discoveries fall to record lows
    https://www.wsj.com/articles/iea-says-global-oil-discoveries-at-record-low-in-2016-1493244000

    Saudi Aramco chief warns of looming oil shortage
    https://www.ft.com/content/ed1e8102-212f-11e7-b7d3-163f5a7f229c

    An oil crisis may be brewing — and it’s not because of decreasing demand
    http://www.businessinsider.com/an-oil-crisis-may-be-brewing-and-not-because-of-decreasing-demand-2018-4

    World Oil Shortages To Lead To Oil Price Spike By 2020s, warns Goldman Sachs
    http://oilprice.com/Latest-Energy-News/World-News/Supply-Crunch-To-Lead-To-Oil-Price-Spike-By-2020s-Expert-Says.html

    2020s To Be A Decade of Disorder For Oil
    https://oilprice.com/Energy/Energy-General/2020s-To-Be-A-Decade-of-Disorder-For-Oil.html

  12. Davy on Sat, 9th Jun 2018 3:14 pm 

    Then be a man and give us a hard date. You seem to know it all and have a mental library of peer reviewed circle jerk sources.

  13. MASTERMIND on Sat, 9th Jun 2018 3:30 pm 

    Davy

    I just did 2020 you dumb fuck..the mental gymnastics you preform are insane..

  14. MASTERMIND on Sat, 9th Jun 2018 3:31 pm 

    Davy

    I give the date, and then you tell me to give you a date? WTF? You must be going into paralysis..lol

  15. Davy on Sat, 9th Jun 2018 4:06 pm 

    master millennial, it is about time you man up. you are such a little whining loud mouth pussy sometimes it take a little effort to get you to show you have nuts.

  16. Roger on Sat, 9th Jun 2018 4:37 pm 

    “…N America could for example set it’s own energy prices independent from the world. We are energy independent you should know.”

    Yeah, right. With the heavy boot of a fascist government….which does appear on the way. Welcome to Venezuela, act 2.

  17. MASTERMIND on Sat, 9th Jun 2018 4:46 pm 

    Ben Bernanke: The US Economy Is Going To Go Off The Cliff In 2020

    https://www.bloomberg.com/news/articles/2018-06-07/bernanke-says-u-s-economy-faces-wile-e-coyote-moment-in-2020

  18. Makati1 on Sat, 9th Jun 2018 6:05 pm 

    MM, I agree that 2020 is about the max for the empire to continue. I hope you are preparing for the change.

  19. MASTERMIND on Sat, 9th Jun 2018 6:18 pm 

    Madkat

    I’m ready..don’t worry about ole MM..I got no kids so that helps a lot..

  20. Cloggie on Sat, 9th Jun 2018 6:23 pm 

    “I’m ready..don’t worry about ole MM..I got no kids so that helps a lot..”

    B-b-but what are you going to eat then, if you have no kids?

  21. jawagord on Sat, 9th Jun 2018 6:36 pm 

    Not that it really matters Boat, but California doesn’t use much of that new light oil from Texas and ND. Those states have a similar problem, no pipeline to California. Alberta crude already goes to Washington State via KM (soon to be government of Canada) pipeline. With the new pipeline increasing supply, more crude to Washington could be squeezed through the old pipeline or simply shipped from Vancouver 90 miles down the coast to Anacortes or on to California to displace some of that Saudi crude.

    http://www.energy.ca.gov/almanac/petroleum_data/statistics/crude_oil_receipts.html

  22. Makati1 on Sat, 9th Jun 2018 6:44 pm 

    MM, yes, it gives you more freedom to do as you want. I waited until I was 58 to gain that freedom again. My “kids” are all in their 40s now and independent.

  23. MASTERMIND on Sat, 9th Jun 2018 7:38 pm 

    Americans are depressed and suicidal because something is wrong with our culture

    https://www.usatoday.com/story/opinion/2018/06/09/kate-spade-suicide-anthony-bourdain-depression-culture-success-column/687388002/

    We’re being brainwashed into suicide..

  24. MASTERMIND on Sat, 9th Jun 2018 8:00 pm 

    Chicago suburb bans semi automatic weapons.. Residents who don’t remove banned weapons face a fine of $1,000 a day..

    http://wgntv.com/2018/04/03/deerfield-bans-certain-semi-automatic-weapons/

  25. Go Speed Racer on Sat, 9th Jun 2018 8:11 pm 

    That’s great.

    Turn Alberta into a toxic sludge dump,
    so that a bunch of Chinks
    can drive around in Hummers.

    And that pipeline will sprout a leak too.

    On the other hand, in Canader there
    aren’t no jobs, eh?
    So they have to sell oil, to pay for their
    government benefit checks.

  26. MASTERMIND on Sat, 9th Jun 2018 8:15 pm 

    GSR

    You’re darn tootin..I wouldn’t mind sitting on my arse all day smoking mushrooms like Greg and collecting government checks..

  27. deadly on Sun, 10th Jun 2018 5:07 am 

    Resilience has the skinny on the pipeline.

    I wouldn’t build a pipeline through British Columbia, just keep shipping it south and the market will do the job there.

    Better to keep the oil movement from one origin than to build a new port for shipping crude oil to China.

    Doesn’t China have controlling interest in the Athabasca Tar Sands Project?

    Under some close scrutiny, that is why the oil pipeline through the Canadian Rockies is being proposed.

    Let the Chinese build the pipeline, let the Canadians protest, then beat the protesters into submission, then finish the pipeline to the west coast of Canada, then ship the tar sands dilbit to China where they will burn it night and day for sure.

    It is what China wants, nobody else.

    ‘All your oil to us belong’ says China.

  28. twocats on Sun, 10th Jun 2018 8:04 am 

    In 2017 the US net imported 3.73 mbpd (sorry slowBoat, basic arithmetic and getting beyond the FAQs page of the EIA is not in your wheelhouse)

    https://www.eia.gov/tools/faqs/faq.php?id=727&t=6

    And of that 3.73 mbpd 40% COMES FROM CANADA.

    Since 13% goes back refined Canada would conceivably not want to go below 13% to US – or else build refining capacity. The other 30% could easily go to China is they are willing to pay. Or Cascadia.

  29. twocats on Sun, 10th Jun 2018 8:08 am 

    First teachers strikes. Recently in my area At&t workers went on strike. and now this:

    https://www.zerohedge.com/news/2018-06-09/striking-ups-workers-will-disrupt-business-nationwide-largest-us-walkout-decades

    this whole “everything is peaches” because oil production and stock markets are at record highs is completely undercut by the fact that wages and quality of life for average american has gone down. that’s why we got trump. and before this is all over – people are going to die – one way or another.

  30. Steve on Sun, 10th Jun 2018 9:58 am 

    about that “full employment”, many would disagree. https://tinyurl.com/yahs6obj

    http://www.shadowstats.com/

  31. rockman on Sun, 10th Jun 2018 11:58 am 

    “…but it is opposed…even groups in Washington state.” Rather hypocritical of the 5th largest oil refining state that has for decades taken advantage of imported oil shipped along the entire west coast of Canada.

  32. LetStupidPeopleDie on Sun, 10th Jun 2018 8:00 pm 

    Tar sand are net energy negative. What is happening in to Canada is similar to what happen in Venezuela a couple year ago. Net positive energy is exhausted and the system is cannibalizing itself to keep only the most important node.

    Energy is send to China to keep the manufacturing node alive, some energy is sent to USA to keep international trade alive. US has a good financial computer networking system that can process a lot of financial transitions. Visa and MasterCard are a good example of the stability of USA financial networking computer system.

    Secondary international trade nodes are being shut down, think of Argentina, Brazil, Mexico and soon to follow Canada and then Europe finally USA .

  33. MASTERMIND on Sun, 10th Jun 2018 8:10 pm 

    It’s being stage managed…. we got our hope and change … that made people feel a bit better … but as things get serious… as hope vapourizes…. we are left with despair….

    For that we get a clown… to distract us… to blame….. and Oxycontin…

  34. Boat on Sun, 10th Jun 2018 8:24 pm 

    Where can Canada sell it’s oil without pipelines. The US doesn’t need all the oil from Canada now. That 2.7 mbpd it does need drops over 100,000 BPD every month. Talk no cooperation with the trade balance and Canada could have no oil exports. Poof, just like that.

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