Amid Trump trade war, Trans Mountain’s Asia appeal grows crucial
WITH President Donald Trump’s trade war against Canada showing no sign of abating, the work on the Trans Mountain pipeline expansion that’s starting next month may seem like a godsend for a nation striving to reduce dependence on its southern neighbour.
After all, the Canadian federal government’s main rationale for saving the project from abandonment with a US$ 3.5 billion purchase from Kinder Morgan was the promise that the bigger line will help the nation’s producers ship more crude to fast- growing importers like China and India.
But lost in the debate is the fact that very few of the 300,000 barrels of oil and refined fuels a day the existing Trans Mountain line ships from Alberta to Canada’s Pacific coast are making their way to Asia.
In fact, in the past year, only two of the 48 tankers that entered the Westridge Dock or Parkland Burnaby terminals have departed directly for Asia, according to data compiled by Bloomberg. One of those vessels left for South Korea in April, and the other departed for China earlier this month. Both were carrying an estimated 550,000 barrels of crude.
The result is that essentially all of Canada’s crude oil exports for the first four months of the year have gone to the US, according to National Energy Board statistics. Some doubt that the Trans Mountain expansion will change that trend.
The idea that Trans Mountain will help Canadian producers get better prices in Asia is “fiction,” said Jeff Rubin, an independent economist who previously served as chief economist of CIBC World Markets. “The highest prices for heavy oil are in the US Gulf, and that’s because that’s where the greatest amount of heavy- oil refinery capacity is.”
Refiners in Asia have typically paid lower prices for crude grades comparable to Canadian heavy oil, such as Mexican Maya, rather than higher ones, he said. Prices for that blend are about US$ 8 a barrel less in Asia than on the Gulf Coast, he said.
Last year, about 54 per cent of the volume carried on Trans Mountain was crude oil shipped to Washington State refineries via the Puget Sound System, according to the pipeline’s website. About 42 per cent of the line’s crude and refined products made it all the way to the Burnaby storage terminal and the Westridge marine station. The remainder ended up at a refined-products storage facility in Kamloops, B.C.
Kinder Morgan Canada expects that the majority of the capacity that the expansion is adding to the line will be for exports from Westridge destined for markets including Washington, California and Asia. However, actual destinations will depend on market conditions, the company said.
“This project came about in response to requests from oil shippers to help them reach new markets in the Pacific Rim,” the company said in an emailed statement. “The limited capacity of the system today prohibits shippers from establishing reliable access to trade consistently with these markets.”
For now, Trans Mountain crude is going mostly to US West Coast refiners that have grown increasingly reliant on imports amid declining production from Alaska and California. US West Coast refineries, with 2.8 million barrels a day of capacity, received 454 million barrels of crude from outside the US last year from countries including Saudi Arabia, Canada and Colombia, the most in Energy Department data reaching back to 1981. — Bloomberg