TMX Expansion Brings Short-Term Relief but Long-Term Uncertainty for Canadian Oil Producers

The recent commencement of the Trans Mountain pipeline expansion (TMX) has led to some warnings from company executives and analysts regarding long-term production growth plans. Although TMX, which began commercial operations after several years of delay, will transport an additional 590,000 barrels per day (bpd) of oil from Alberta to the Pacific Coast, committed shippers have already secured 80% of the pipeline’s capacity, leaving 20% for spot shipments. The expansion has provided Canada, the world’s fourth-largest oil producer, with adequate pipeline capacity for the first time in over a decade, resulting in an increase in heavy oil prices. However, some experts predict that TMX alone may not resolve the ongoing pipeline constraint problem. Canadian Natural Resources Limited, the country’s largest oil and gas corporation, has proposed expanding its Horizon oil sands mine’s bitumen production by 195,000 bpd, contingent upon new pipeline construction and financial assistance from the government for carbon emission reduction initiatives. This proposal follows Suncor Energy’s announcement of production growth and a reduction in Canadian crude discounts due to TMX’s operationalization. Nevertheless, many analysts believe that TMX will most likely be the final oil pipeline constructed in Canada because of regulatory obstacles and ecological opposition. As a result, Canadian producers anticipate an increase in oil output of 300,000-500,000 bpd in 2024, making them one of the globe’s major sources of supply development. However, the current pipeline capacity surplus is expected to deplete inside five years, based on Rival Cenovus Energy’s projection to expand its production levels by 150,000 bpd, or 19%, over the following three to four years.