So close … but so far

Government sources predict Trans Mountain approval as Chinese market dries up

Gary Park

for Petroleum News

There is a growing belief that plans for tripling capacity on Canada’s Trans Mountain pipeline system are nearing final approval.

However, that shred of hope is being short-circuited by indications that the Chinese market, a vital outlet for the targeted 890,000 barrels per day of crude bitumen to flow through the C$9.3 billion Trans Mountain expansion, is drying up.

Word leaking out of Alberta government inner circles points to a go-ahead from the federal cabinet of Prime Minister Justin Trudeau before a May 22 deadline set by the National Energy Board for a final verdict on the pipeline project.

Even Andrew Weaver, leader of British Columbia’s Green Party, is conceding that Trudeau “has essentially been saying the pipeline will be approved.”

What troubles industry observers is evidence that Chinese demand for Canadian crude has gone into a sharp tailspin this year as the price of Western Canadian Select - the blended product from Alberta - has rebounded from a record low of C$10.29 a barrel from a peak of C$58.37 a year ago. The latest reported price for WCS was C$53.75.

Only four tanker shipments

So far this year only four crude tankers have left the Westridge loading dock, compared with the 12 tankers that set record shipments in 2018 of 6.56 million barrels bound for China, almost one-third of all crude that left British Columbia.

David Huntley, a professor emeritus of physics at Simon Fraser University, said he believes a “significant amount of oil was sent to China near the end of 2018 when the (WCS) price was very low.”

That trend stopped the moment Alberta Premier Rachel Notley curtailed production in her province by 325,000 bpd, helping to reduce the price differential between WCS and West Texas Intermediate.

Kevin Birn, vice president of IHS Markit in Calgary, suggested there is too much fixation on crude volumes destined for China, when markets in Korea, Japan, India, California and the U.S. Gulf Coast are just as important.

Huntley’s records show that tankers loading up at Westridge peaked at 71 in 2010, slumping to 15 in 2016.

Birn also noted that crude exported out of British Columbia is only a fraction of the 4 million bpd that Alberta sends, mostly to the U.S.

In a statement on the shipping fluctuations, the B.C. Ministry of Environment said the provincial government maintains the Trans Mountain expansion is “unnecessary and continues to recommend the federal government (which has owned Trans Mountain since last year) abandon the project.”

“We continue to argue that an oil spill could seriously impact B.C.’s environment, economy and the coast.”