Alberta revenues from TMX look good; no in-service date yet set

The number crunching for Canada's Trans Mountain pipeline expansion, TMX, is now in full swing with the new pipeline connection of 890,000 barrels per day from the Alberta oil sands to Vancouver's tanker terminal expected to generate C$40 billion in royalties and taxes over two decades, more than covering the C$31 billion price tag of the expansion project.

So far, so good for Alberta.

Although the TMX owner -- the Canadian government -- has yet to set an in-service date for TMX, the company has served notice to producers to start moving crude into Trans Mountain.

"TMX has issued a call for line-fill - as a matter of fact they are looking for 2.1 million barrels per day in April and another 2.1 million bpd in May," said Derek Evans, chief executive officer of MEG Energy, one of TMX's leading shippers.

"It's good news not only for us but everybody in the heavy oil business," he told reporters after a conference call March 1 and a day after the Alberta government released its 2024-25 budget. The budget estimated that every US$1-a-barrel drop in the benchmark price of Western Canada Select would add C$600 million to government revenues.

Alberta looks forward to revenue

Alberta Premier Danielle Smith hailed Evans's comments, noting she was crossing her fingers that TMX would be online by the third quarter, increasing Alberta's export capacity and helping the province gain some clarity on what it could expect "in coming years."

"If we see an increase in our production by 600,000 bpd you can just do the math on that - if it's about $75 a barrel we get about one-third of that in royalties," Smith said.

In a recent regulatory filing with the Canadian Energy Regulator, the government corporation that owns TMX said it expects the final price tag for TMX to be about C$10 billion higher than last spring's C$31 billion cost estimate.

Analyst Phil Skolnick of Eight Capital said the startup of TMX should lower the price differential for WCS and remove the risks of it widening significantly as Canadian oil production continues to set records. "We're getting close, if we're not already there, to basically having supply outpacing pipeline capacity out of Western Canada," he said. "For Canadian oil in general it provides room for growth."

The Alberta budget forecasts that West Texas Intermediate crude prices will average US$74 a barrel in the new fiscal year.

Adam Hardi, a vice president with Moody's Investors Service credit rating agency, called the forecasts "relatively conservative," noting they are below current oil prices of almost US$80 a barrel.

The imminent startup of TMX should be a big benefit to Alberta, said Pedro Antunes, chief economist with the Conference Board of Canada. "If we hadn't seen the green light on TMX coming into service that would have been a significant downside cost," he said.

--GARY PARK