Expanded Trans Mountain pipeline capacity fails to lift Canadian heavy oil price
Canadian oil producers banking on new pipeline capacity to cut export price discount
Aug 6 (Reuters) - The Trans Mountain oil pipeline expansion, completed in October 2022, was expected to significantly reduce the discount on Canadian heavy crude. However, the expansion has failed to deliver on its promise, leaving producers and industry experts perplexed.
Pipeline expansion fails to boost prices
The Trans Mountain pipeline expansion was designed to increase the capacity of the existing line by 590,000 barrels per day, bringing the total capacity to 890,000 barrels per day. The project was completed at a cost of C$21.4 billion ($16.4 billion), making it one of the most expensive infrastructure projects in Canadian history.
However, since the pipeline expansion became operational, the discount on Canadian heavy crude has remained stubbornly high. Western Canadian Select (WCS), a benchmark heavy crude grade, is currently trading at a discount of around $20 per barrel to West Texas Intermediate (WTI), the U.S. benchmark crude.
Reasons for the persistent discount
There are several factors that may be contributing to the persistent discount on Canadian heavy crude. One factor is the increased production of heavy crude in the United States. The U.S. is now the world's largest producer of oil, and its production of heavy crude has been growing rapidly in recent years.
Another factor is the lack of demand for heavy crude in Asia. China, the world's largest importer of crude oil, has been shifting its focus away from heavy crude in recent years. This has reduced demand for Canadian heavy crude, which is typically exported to Asia.
Conclusion
The Trans Mountain pipeline expansion was a major investment for Canada, but it has failed to deliver on its promise of reducing the discount on Canadian heavy crude. The persistent discount is a major challenge for Canadian oil producers, who are already struggling to compete with their U.S. rivals. The expansion's failure to boost prices is a reminder of the challenges facing the Canadian oil industry and the need for the government to find ways to support the industry and reduce the discount on Canadian crude.
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