Selloff or Market Correction? Either Way, Here's What to Do NextSee Overvalued Stocks

Analysis-Trans Mountain oil pipeline expansion pushes rivals to cut rates, for now

Published 2024-09-03, 06:03 a/m
© Reuters. FILE PHOTO: A signpost sits near Enbridge?s Mackinaw facility, servicing the company?s existing underwater Line 5 pipeline and its planned replacement tunnel through the Straits of Mackinac between Lakes Michigan and Huron, in Mackinaw City, Michigan, U.S
TRP
-
ENB
-
MPLX
-

By Arathy Somasekhar

HOUSTON (Reuters) - Pipelines that historically carry Canadian crude to the U.S. are cutting rates and looking to ship different grades of crude oil due to rising competition from the newly expanded Trans Mountain pipeline.

The moves will temporarily cut the cost of transporting some of Canada's heavy crude to the U.S. Midwest and Gulf Coast next month. U.S. imports of Canadian crude hit a record in July as Trans Mountain expansion (TMX (TSX:X)) volumes grew.

Shipments on TMX started in May, sending up to 890,000 barrels per day (bpd) to Canada's Pacific Coast. About 80% of the volumes are contracted, leaving 20% available for spot shipments.

With more oil moving on TMX, Canadian pipeline operator Enbridge (TSX:ENB) said in August it will cut its tariffs for September by 11% per barrel on heavy crude moving on its Mainline system. The 3 million-bpd system ships the bulk of Canada's crude exports from Edmonton to the U.S. and is one of the main competitors to TMX.

The company is not rationing pipeline space for September for the first time in over a year, with sufficient capacity available to cover all nominated barrels.

Enbridge said it anticipates Mainline will be well utilized for the remainder of the year, attributing the decrease in volumes to routine oil producer and refiner maintenance.

"We are starting to see the TMX impact play out for the Mainline, and therefore for systems that carry Canadian barrels to the U.S. Gulf Coast," said Dylan White, a North American crude markets analyst with researcher Wood Mackenzie.

Enbridge's 190,000-bpd Spearhead and 720,000-bpd Flanagan South pipelines that deliver crude from the Mainline to Cushing storage hub in Oklahoma could likely lose volumes, analysts said. The 950,000-bpd Seaway, jointly owned by Enbridge and Enterprise Products Partners, which ships oil from Cushing to the U.S. Gulf Coast, could also see lower flows.

Seaway and Flanagan pipelines remain well utilized, Enbridge said.

Pipelines like MPLX's Capline, a key conduit for Canadian heavy crude, will likely transport more light crude from the Bakken oilfield in North Dakota to offset the loss of Canadian heavy grades, analysts said. The 1.5 million-bpd pipeline was once the largest crude oil pipeline in the U.S. before it was reversed in 2021 to carry crude oil from north to south. MPLX declined to comment on Capline product movements.

SHORT-LIVED IMPACT

Delays in TMX's completion provided ample time for Canadian producers to ramp up supply, and volumes on rival pipelines are likely to pick up as Canadian oil output is expected to grow rapidly.

"A combination of TMX coming online later than expected and Canadian supply ticking higher ... has elevated overall utilization on broader Canadian outbound pipelines, even as TMX has expanded overall capacity," Wood Mackenzie's White said.

© Reuters. FILE PHOTO: A signpost sits near Enbridge?s Mackinaw facility, servicing the company?s existing underwater Line 5 pipeline and its planned replacement tunnel through the Straits of Mackinac between Lakes Michigan and Huron, in Mackinaw City, Michigan, U.S. February 25, 2024.  REUTERS/Carlos Osorio/File Photo

Output will rise about 500,000 bpd in 2025 from 2023, offsetting the additional capacity added by TMX, according to analysts from energy infrastructure firm East Daley Analytics.

Excess pipeline space will be filled relatively soon, said Kristy Oleszek, director of energy analytics at East Daley.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.