Asian markets are the backbone of success for Canada’s new oil pipeline

Fresh data coming in has revealed that Canada’s new Trans Mountain (aka TMX) pipeline is indeed delivering on its promise to diversify the country’s crude oil markets. Conformable data from Vortexa via Bloomberg, Canadian oil producers have shipped about 28 million more barrels of crude oil off the country’s west coast since the expanded Trans Mountain pipeline began operations in June, compared with the corresponding period in 2023.

Meanwhile, US Gulf supplies fell by 1.68 million barrels in that time frame. This encouraging trend demonstrates that TMX is working as intended, reducing the Canadian oil industry’s reliance on US pipelines and refineries, which has forced Canadian producers to accept higher discounts for crude oil, leaving them exposed to oil price shocks.

As expected, the vast majority of TMX crude goes to the Asian market, with nearly two-thirds going to China, India, South Korea and Brunei, with the rest going to US refineries. China became TMX’s biggest customer, buying an additional 8.24 million barrels of Canadian crude since June. This figure marks an increase of 11.6 million barrels in the volume carried off the west coast of Canada, along with a reduction of 3.35 million barrels through the Gulf. South Korea was the second-biggest buyer, buying an additional 3.91 million barrels on Canada’s west coast, while India took another 1.53 million barrels.

Chinese private refiner Rongsheng Petrochemical purchased two cargoes of Canadian Access Western Blend (AWB) crude oil from ConocoPhillips (NYSE:COP) and Vitol in addition to two other AWB goods he bought through an auction. Cold Lake and AWB are heavy sour crudes containing 3.5-4% sulfur and with an API gravity of 21-22 degrees.

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South Korean refiner GS Caltex shared a 550,000-barrel Cold Lake crude cargo with Japan’s top refiner AENEOSwith GS Caltex taking 300,000 barrels, while ENEOS will receive 250,000 barrels. The best refiner in South Korea SK Energya unit of SK Innovationbought a cargo of 550.00 barrels from Unipec while Hengyi Petrochemical, a Brunei refinery operator, also purchased a similar volume of crude oil from PetroChina Co (OTCPK:PCCYF). All commodities were sold at ICE Brent at discounts between $5 and $6 per barrel.

The expanded TMX pipeline will triple the flow of crude oil from landlocked Alberta to Canada’s Pacific coast to 890,000 barrels per day (bpd). TMX offers Asian refiners an opportunity to diversify their imports while also giving Canadian producers more access to the US West Coast and Asian markets. TMX crude exports are expected to register ~350,000-400,000 bpd and will compete with heavy grades from Latin America and the Middle East. According to Muyu Xu, a senior crude oil analyst at research firm Kpler, Cold Lake crude is about $10 a barrel cheaper than Iraq’s Basra Heavy crude for shipments to China.

“Canada’s TMX crude draws interest from Asian buyers keen to secure cheap supplies of heavy grades but lack access to US-sanctioned Venezuelan crude”, XU told Reuters.It will take some time for refiners to experiment and test TMX crude as the first cargoes have just arrived,“, she added.

The US Gulf Coast is still important

That said, the US Gulf Coast will likely continue to see buoyant business for the foreseeable future. According to Vortexa analyst Rohit Rathod, the Gulf Coast’s biggest draw remains the ease of loading very large crude carriers (VLCCs), which can carry up to 2 million barrels of oil, a feature that has helped keep export levels high Canadians from the US. Gulf Coast. For example, India’s Reliance Industries delivered 2 million barrels of Canadian crude via a VLCC in May from Vancouver to its Jamnagar refinery. In comparison, smaller Aframaxes that typically carry up to 800,000 barrels are limited to loading about 550,000 barrels at Vancouver due to port draft restrictions.

In other news, the Canadian government is trying to privatize TMX. Trans Mountain Corp., the owner of TMX, is arranging a bond sale to refinance some of its debt ahead of the Canadian government’s eventual sale of the oil pipeline operator. The company had $25.3 billion ($18.4 billion) in debt as of March 31, including credit agreements with a syndicate of lenders containing two facilities totaling $19 billion.

The Canadian government purchased and nationalized the original pipeline from a facility of Kinder Morgan Inc. (NYSE:KMI) in 2018 to ensure that the expansion will be achieved. Actually, the federal government acquired its corporate owner, Trans Mountain, which became a federal crown corporation, with Ottawa framing the decision around a desire to secure a key Canadian asset. TMX ended up witnessing massive cost overruns, with the project costing US$34 billion, more than six times the original estimate.

By Alex Kimani for Oilprice.com

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