There’s no end in sight for Canada’s oil pipeline glut

Like us trying to do spreadsheets while also taking a Zoom call, Canada’s pipelines are at full capacity.

Driving the news: Sure as the sun rises in the east, the Trans Mountain pipeline expansion (TMX) hit yet another delay, this time due to technical issues. The long-awaited expansion is now unlikely to meet its April start date but is still on track to begin operations next quarter. 

  • The expansion is expected to nearly triple the pipeline’s capacity and allow oil to flow to the West Coast, making it easier to tap into the lucrative Asian export market.

Big picture: Aside from driving the TMX billions over budget, delays have sapped the pipeline of some of its intended benefits. In theory, it was supposed to help alleviate Canada’s persistent pipeline capacity issues. However, since it’s arriving so late, the added capacity it brings might not be enough. 

Really, why? Well, ya see, Canadian oil drillers have ramped up production in recent years — with Alberta’s oil output hitting record highs just last November and December — partly in anticipation of the pipeline’s completion. While the TMX will be able to take on this new oil flooding the market at first, some fear that it could run out of capacity within two years. 

  • If the project had met one of its earlier projected in-service dates (say, December 2019), the potential benefits of heightened capacity would have lasted much longer. 

Why it matters: Even as Canada tries to green itself, the oil and gas sector remains a massive economic driver. Yet there’s still untapped potential, as Canadian drillers have had to sell their crude at a steep discount for years due to a lack of pipeline capacity to export it all. 

Bottom line: Given all the regulatory and environmental hurdles, Canada almost certainly will never see another pipeline expansion of this scale again. And with global oil demand expected to peak by decade’s end, Canada has one last chance to capitalize on it.—QH