WINNIPEG / OTTAWA (Reuters) – The expansion of the Canadian government’s Trans Mountain pipeline is becoming increasingly important to the oil sector as rival Keystone XL’s cancellation has diminished future options to transport crude oil, potential buyers say.
Trans Mountain Corp, a government-owned company, is spending C $ 12.6 billion ($ 9.9 billion) to nearly triple capacity to 890,000 barrels per day (bpd), a 14% increase over current total Canadian capacity.
Prime Minister Justin Trudeau’s government bought the 68-year-old pipeline in 2018 when previous owner Kinder Morgan faced legal hurdles to extend the 1,150-kilometer line from Alberta to the British Columbia coast. Ottawa has always said it would find new owners.
This week, US President Joe Biden revoked TC Energy’s Keystone XL (KXL) pipeline, pushing former President Donald Trump’s efforts to build the line that would have supplied US refineries with 830,000 bpd of Canadian oil , would have undone.
That decision has made the case for completing the Trans Mountain expansion stronger.
“This pipeline is now even more valuable,” said Joe Dion, chief executive of Western Indigenous Pipeline Group, one of several First Nations groups looking to buy Trans Mountain.
“Everyone thought Trudeau was not going to get anything done in Canada, and he’s the one who successfully got a pipeline on Trump.”
Trans Mountain is gaining more strategic importance now that KXL is being canceled, but that doesn’t mean its group would pay more for it, Dion said.
Trans Mountain has completed 22% of the TMX expansion project, scheduled for service in December 2022. Suncor Energy Inc, Canadian Natural Resources Ltd and BP PLC are among the dedicated shippers that have long secured 80% of their additional capacity. term.
“All eyes are on TMX,” said Delbert Wapass, executive chairman of Project Reconciliation, a First Nations coalition hoping to buy 51% this year.
Sharing Trans Mountain’s profits would help improve living conditions on First Nations, he said.
Canadian companies have long struggled to secure top crude oil prices as pipeline congestion forced them to sell at a discount.
However, reduced fuel demand due to pandemic travel locks and ongoing pipeline expansions have eased the flow. Even without KXL, Canada could have surplus export pipeline capacity once TMX goes live, said Matt Taylor, director of infrastructure research at investment bank Tudor Pickering Holt, who expects modest growth in oil production through 2025.
Ottawa plans to sell the pipeline once there is less risk of completion and consultations with First Nations are finalized, Treasury Department spokeswoman Katherine Cuplinskas said. TMX has faced fierce opposition over leakage concerns.
A second government source said it purchased Trans Mountain for its strategic importance, as its connection to the Pacific allows shippers to transport oil to Asia, as well as the United States, which buys most of Canadian crude oil.
Now its importance is even greater, the source said.
Enbridge Inc, which operates the North American Mainline oil network, also benefits from the demise of KXL. It plans to sell long-term contracts for most of Mainline’s capacity, pending regulatory approval, rather than continuing to ration it in the spot market.
KXL’s cancellation frees long-term commitments from shippers who can now sign Mainline contracts, Taylor said.
($ 1 = 1.2710 Canadian dollars)
Reporting by Rod Nickel in Winnipeg and Steve Scherer and Julie Gordon in Ottawa; Editing by Marguerita Choy