*Oil Price
Canada’s oil output is
booming as producers ramp up projects and extraction amid expanded market
access and narrowing discounts of the Canadian heavy crude to the U.S.
benchmark.The Trans Mountain Expansion Project, now finally completed and
operational after years of delays, is changing the fortunes of the oil sands
producers in Alberta, giving them access to markets in Asia and the U.S. West
Coast. Constrained for years due to insufficient egress, Canada’s oil now has
nearly 600,000 barrels per day (bpd) of additional market access. The expanded
Trans Mountain pipeline is tripling the capacity of the original pipeline to
890,000 bpd from 300,000 bpd to carry crude from Alberta’s oil sands to British
Columbia on the Pacific Coast.
And producers are taking advantage of this. They began ramping up
production at the end of last year in anticipation of the Trans Mountain
Expansion (TMX) start in the first half of this year. Canadian oil firms now
get more bang for their buck as the discount of Western Canada Select (WCS),
the benchmark for Canadian heavy crude sold at Hardisty in Alberta, has
narrowed relative to the U.S. crude oil benchmark, West Texas Intermediate
(WTI) in recent weeks.Moreover, the production increases in the oil sands are
the result of the expansion of operational projects with existing
infrastructure, so the capital expenditure – which is very high for this type
of crude extraction – has been lower than for building projects from scratch. The
rise in Canada’s oil sands output, mostly thanks to the Trans Mountain
Expansion, is making the country one of the top non-OPEC+ contributors to
growing global supply this year, alongside the United States, Guyana, and
Brazil. Some analysts even forecast that Canada could be the single largest
source of oil supply growth, ahead of the U.S. or Guyana. “Barring any unforeseen circumstances, Canada
could be the largest source of increased oil supply across the globe in 2024,”
Marc Ercolao, economist at TD Economics, wrote in a report earlier this year.
This year, output growth in Canada could be 300,000 bpd –500,000 bpd,
“putting the nation in the running to be the largest source of global oil
supply growth,” Ercolao said. Related: Novatek Proceeds With Arctic LNG 2
Despite New Sanctions on Russia Global oil supply growth estimates vary based
on differing projections from forecasters and agencies, but Canadian oil could
account for 25–67% of incremental supply in 2024, the economist noted. “Canada
should be able to capitalize on higher prices paid for our oil as well as the
forthcoming ability to get Western oil reaching international markets,” Ercolao
added. Increased Egress, Higher Prices TMX
is set to boost the price of Canada’s heavy crude oil for years to come, top
executives at the major energy firms say.
In 2023, WCS was valued at an average of US$17.90 per barrel less than
WTI. Early in 2024, that discount had widened to about US$18.50 per barrel
before narrowing to less than US$13 per barrel in early April 2024, just before
TMX entered in service, data from Canada Energy Regulator (CER) showed. Crude
oil production has been growing in western Canada, with Alberta hitting
record-high production of 4.53 million bpd in December 2023. TMX is set to
increase total western Canadian crude oil export pipeline capacity by 13%,
helping to relieve capacity constraints on export pipelines, the regulator
noted last month. Overall, the capacity of the expanded Trans Mountain pipeline
will represent 17% of the total pipeline export capacity available to Canadian
crude oil shippers, CER said. While the biggest Canadian oil producers reported
a mixed bag of Q1 earnings this spring, all of them expect TMX to boost
Canada’s oil prices and to be a major asset for the industry for years to come.
Drew Zieglgansberger, Executive Vice-President and Chief Commercial Officer at
Cenovus Energy, said, “We’re pretty excited on behalf of the industry and
Canada to have another great asset available to us.”