Canada pushes Trans Mountain pipeline to sell oil to Asia

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.”