Canada Bets on Trans Mountain Expansion to Sell Oil in Asia

Canada may be the fourth largest producer and third largest exporter of oil in the world, but it has one sole customer of its oil—the United States.

At the end of last month, Canada took a step toward ensuring that its oil would have an export outlet to the world’s fastest-growing energy market, Asia.

Analysts believe that the federal government stepping in to save the Trans Mountain expansion project has boosted the chances that the pipeline will be built and give Canada an export outlet from the Pacific Coast to the Asian markets.  The industry is cautiously optimistic, but some companies say that Canada must do more to level the playing field for its oil.

Last year, Canada’s crude oil exports increased by 6.5 percent annually to 3.3 million bpd.  Of those, exports to destinations other than the U.S. accounted for just 0.8 percent of all, according to data by the National Energy Board (NEB).

Due to congested takeaway capacity and lack of enough pipelines to either the Pacific or the Atlantic Coasts, Canada’s oil is currently priced at a huge discount to the U.S. benchmark.  The discount at which Western Canadian Select (WCS)—the benchmark price of oil from Canada’s oil sands delivered at Hardisty, Alberta—trades relative to West Texas Intermediate (WTI) has been US$20, and at times US$30 a barrel this year.

The Canadian push to seek more customers (and higher prices) for its oil coincides with a heightened trade dispute between the U.S. and Canada.

“You could argue the timing was intentional, but this was going on well before NAFTA [renegotiations],” Dana Peterson, U.S. and Canada economist at Citigroup, told CNBC.  “The Canadian government needs another venue for evacuating oil, and that’s westward.  They need another buyer, and that’s Asia.”

Canada owning Trans Mountain greatly boosts the chances of the project, although it’s not a certainty yet, according to analysts. 
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Although the amount of Canadian oil that would be shipped to Asia is not huge, the project—if completed—would be a game-changer for Canada’s oil industry, according to John Kilduff, partner with Again Capital.

“This move by the Canadian government to build the pipeline sets up a future U.S.-Canadian rivalry for Asian market share,” Kilduff told CNBC.

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