| CALGARY, Alberta
CALGARY, Alberta May 31 Kinder Morgan Inc's
Trans Mountain pipeline expansion is the centrepiece of
Canada's plan to ship heavy crude oil to energy-hungry Asia but
intense provincial opposition could cause delays and leave
Canadian producers lagging U.S. and Middle East firms in the
race for market share.
The Trans Mountain expansion was meant to triple capacity on
the pipeline that flows 300,000 barrel per day of landlocked
crude from Alberta's oil sands to the Pacific coast, but British
Columbia's new minority government vowed on Tuesday to stymie
the C$7.4 billion ($5.5 billion) project despite the federal
government approving it last November.
After opposition from environmentalists and aboriginal
groups, this is the latest blow to the Canadian oil patch, where
international oil majors have sold off C$22.5 billion in assets
this year because of high costs and tight export pipeline
Now Trans Mountain looks set to join the ranks of other
stalled export pipelines including TransCanada Corp's
Keystone XL and Energy East projects to the United States and
eastern Canada, adding to frustration in the energy industry.
"It is by far the most important pipeline given we need to
be able to unlock our barrels and move them to key demand growth
regions like China and India," said RBC Capital Markets analyst
Michael Tran. "While other pipelines south and east would be
nice to have, it's absolutely imperative to go west."
Oil sands producer Cenovus Energy Inc plans to
pursue customers in Asia and higher-priced U.S. markets like
California once the Trans Mountain expansion nears completion,
but has so far held off doing so because of limited market
access, spokesman Reg Curren told Reuters in an email.
"Due to current pipeline capacity restrictions to coastal
ports, the majority of Canadian oil exports to the U.S. go to
the Midwest where historically they have been sold at a discount
to world prices," Curren added.
The United States is essentially Canada's only customer for
oil, taking 3.5 million of its 3.55 million bpd of crude
exports, according to the most recent Statistics Canada data.
Asia's refining market is the fastest growing in the world,
adding 450,000 bpd of crude capacity in 2017 on top of total
installed capacity of nearly 29 million bpd.
Most of those refineries are configured to process medium
grade crudes, such as those from the Middle East, but a boom in
U.S. shale production means more light oil could also end up in
Asia for blending, said John Auers, from energy consultancy
Turner, Mason & Company.
"Their incremental barrel has go to overseas," Auers said.
"The growth in U.S. crude exports has been pretty steep and some
of that will end up in Asia."
Along with U.S. shale producers like EOG Resources Inc
and Whiting Petroleum Corp, the Canadian
crude-by-rail industry could benefit from a looming crunch in
export pipeline capacity as crude production grows.
Crude-by-rail exports in March hit 155,655 bpd, their
highest since October 2015, according to National Energy Board
Uncertainty over Trans Mountain could also prompt more
producers to commit to shipping on the Keystone XL pipeline.
TransCanada Chief Executive Russ Girling recently said those
negotiations had been complicated by lower oil prices and
alternative export routes.
Some energy industry players, however, were sceptical that
any pipeline could progress in Canada currently, and blamed
Prime Minister Justin Trudeau's emphasis on new energy projects
needing approval from communities or "social license."
"Why activate Keystone XL or Energy East when you cannot
even figure out the elephant in the room, which is social
license and no infrastructure growth?" said Rafi Tahmazian, a
portfolio manager at Canoe Financial.
That was echoed by the leader of Canada's federal New
Democratic Party Tom Mulcair, who told reporters in Ottawa that
Canada does not have a credible thorough environmental
"The problem of course now is the fact that in the absence
of that process, none of these projects can go ahead," he said.
(Additional reporting by David Ljunggren in Ottawa; Editing by