Trans Mountain Oil Pipeline Expansion Forces Rivals to Reduce Rates, at Least Temporarily – By Reuters

By Arathy Somasekhar

HOUSTON – Pipelines that have long been responsible for transporting Canadian crude to the U.S. are reducing their rates and exploring the shipment of different grades of oil as competition intensifies from the newly expanded Trans Mountain pipeline.

These rate adjustments will temporarily reduce the cost of transporting certain types of Canada’s heavy crude to the U.S. Midwest and Gulf Coast in the coming month. U.S. imports of Canadian crude reached a record high in July, bolstered by the increased volumes flowing through the Trans Mountain expansion.

Deliveries on the Trans Mountain pipeline began in May, with the capacity to transport up to 890,000 barrels per day to Canada’s Pacific Coast. Approximately 80% of this capacity is already contracted, leaving about 20% available for spot shipments.

As a response to the increase in oil being moved on Trans Mountain, Canadian pipeline operator Enbridge announced in August that it would reduce its tariffs by 11% per barrel for heavy crude transported via its Mainline system to the U.S. Gulf Coast. This system, which has a capacity of 3 million barrels per day, accounts for most of Canada’s crude exports from Edmonton to the U.S. and serves as a key competitor to the Trans Mountain pipeline.

For the first time in over a year, Enbridge will not be rationing pipeline space in September, as there is enough capacity to accommodate all nominated barrels.

The company anticipates the Mainline will be optimally utilized for the rest of the year, attributing any volume decreases to routine maintenance conducted by oil producers and refiners.

“We are beginning to observe the impact of Trans Mountain on the Mainline, as well as on the systems that transport Canadian oil to the U.S. Gulf Coast,” stated Dylan White, a North American crude markets analyst with Wood Mackenzie.

Analysts suggest that Enbridge’s Spearhead pipeline, with a capacity of 190,000 barrels per day, and the Flanagan South pipeline, with a capacity of 720,000 barrels per day, may experience reduced volumes as they transport crude from the Mainline to the Cushing storage hub in Oklahoma. Additionally, the Seaway pipeline, jointly owned by Enbridge and another partner and capable of shipping 950,000 barrels per day from Cushing to the U.S. Gulf Coast, could see a decline in flows.

Despite these potential reductions, Enbridge maintains that the Seaway and Flanagan pipelines are currently well utilized.

Furthermore, pipelines like MPLX’s Capline, a crucial channel for Canadian heavy crude, are expected to redirect efforts toward transporting more light crude from the Bakken formation in North Dakota to compensate for reduced shipments of Canadian heavy grades. Once the largest crude oil pipeline in the U.S., Capline was reversed in 2021 to ship oil from north to south.

The impacts on pipeline flows are likely to be short-lived. Delays in the completion of the Trans Mountain pipeline allowed Canadian producers to boost supply, and volumes on competing pipelines are expected to rise as Canadian oil production is projected to increase significantly.

Analysts from East Daley Analytics predict that output is set to rise by about 500,000 barrels per day in 2025 compared to 2023, offsetting additional capacity introduced by the Trans Mountain expansion. Excess pipeline space is anticipated to be filled quickly, according to Kristy Oleszek, director of energy analytics at East Daley.