Trans Mountain Pipeline Expansion is Expected to Transport More Canadian Oil to the US, Instead of Asia

Canada’s Trans Mountain pipeline development was intended to open up Asian markets for its oil, but analysts and traders say those barrels will likely end up on the U.S. West Coast rather than in Asian countries, as they consume cheaper Russian oil as a result of sanctions imposed on the country after its invasion of Ukraine.

Canada has the United States as its top oil consumer, but the geopolitical unrest makes it difficult to diversify its customer base. The heavy crude refining market in Asia is nearly nine times the size of California’s.

After being promoted as an extended gateway to Asia over 10 years ago, the controversial C$30.9 billion ($23.5 billion) TMX project is scheduled for completion after being purchased by the Canadian government in 2018.

Those intentions have been disrupted by Western restrictions on Russian crude in response to Russia’s invasion of Ukraine. The Asian market has been overwhelmed by affordable Russian crude oil, primarily from the Urals and ESPO. Analysts and traders agree that Canadian barrels will have a hard time competing.

Early next year, TMX will begin transporting an additional 590,000 bpd of petroleum from Alberta to the Pacific Coast of British Columbia, where it will be put onto tankers designed for export.

“We think a disproportionate amount of those volumes are going actually to PADD 5 (the U.S. West Coast), staying within North America instead of Asia,” said the principal analyst of North American crude markets at energy consultancy Wood Mackenzie, John Coleman.

According to another Canadian trader, TMX has become less profitable for producers than it may have been a few years ago due to regulatory delays and environmental concerns.

“A lot of our lunch has been eaten by the Russians and Middle Eastern countries like Iraq,” he said.

According to the U.S. Energy Information Administration, the original Trans Mountain pipeline transports about 300,000 bpd of mostly light crude to the U.S. West Coast. The Cherry Point refinery of BP (BP.L) and the Puget Sound refinery of HF Sinclair Corp (DINO.N) are two of the main customers for Canadian imports.

According to Skip York, chief energy strategist at Turner, Mason & Company, the biggest demand is expected to come from refineries in southern California that are suited to process heavy sour crude, meaning that the extended pipeline will transport mainly heavy oil.

York also claimed that once Western sanctions on Moscow are lifted, TMX barrels could go to Asia and replace some Middle Eastern barrels.

“Today every crude in Asia is having a hard time competing with Russian crude,” he said. “But diluted bitumen ought to compete fairly well against Arab heavy, and will compete against Basra heavy.”