Despite a recent resurgence in oil production, Western Canada’s pipeline constraints have largely been resolved, thanks to the completion of Enbridge’s Line 3 Replacement Project. The only other major expansion on the horizon is Trans Mountain, whose completion has been delayed to the end of 2023. This begs the question — is this enough capacity, and how long before the pipelines become full again?
CURRENT STATE OF AFFAIRS
Canada has 6 crude export pipelines, all originating from Edmonton or Hardisty, Alberta:
Trans Mountain, which runs to the West Coast,
Rangeland, Milk River and Express, which run south to the Rocky Mountains region, and connect to the Midwest,
Keystone, which connects to the Gulf Coast, via the Midwest, and
Mainline, which runs to the Midwest, and connects to the Gulf Coast.
PIPELINE NAME | kBBL/DAY | |
Trans Mountain | ||
Express | ||
Milk River | ||
Rangland | ||
Keystone | ||
Mainline | ||
TOTAL CAPACITY | ||
REFINED PRODUCTS + U.S. OUTPUT | ||
TOTAL CRUDE EXPORT CAPACITY |
The six pipelines, excluding room for refined products and US production, have a crude carrying capacity of about 4 million bbl/day.
DOES CANADA HAVE ENOUGH EGRESS CAPACITY?
To answer that question, let’s look at the math …
In the second half of 2021, Western Canada produced 4.8 million bbl/day of marketable crude, including bitumen diluent volumes. Regional refinery demand, including Saskatchewan and Northern BC, averaged about 600,000 bbl/day. So that leaves about 4.2 million bbl/day of crude in search of pipeline space, in order to be shipped out to other refineries.
Canada is therefore a bit short, at least until the Trans Mountain Expansion comes online at the end of 2023. Once completed, egress capacity is expected to grow to 4.6 million bbl/day, which is more than enough to meet the current supply. Until then, rail transport will have to pick up the slack.
NO NEW PIPELINES ON THE HORIZON, EXCEPT …
There are a number of large high-profile export pipelines which were abandoned at some point during their development — notably Keystone XL, canceled by the US government, Northern Gateway, canceled by the Canadian government, and Energy East, canceled by operator TC Energy.
Combined, the three projects would have added 2.5 million bbl/day of additional egress capacity to the East Coast, West Coast and U.S. Gulf Coast. Given the current state of affairs on both sides of the border, neither TC Energy or Enbridge have expressed any interest in reviving any of these projects. None of these pipelines will ever see the light of day unless funded by taxpayers.
However, not all is lost. Both TC Energy and Enbridge have room to expand capacity on existing systems. Expansions are usually in the form of additional pumping capacity and the addition of drag-reducing agents (DRAs).
TC Energy says its 590,000 bbl/day Keystone pipeline will likely add another 50,000 bbl/day in the near term. Before leaving office, President Trump increased Keystone’s regulatory export license to 760,000 bbl/day, leaving lots of room for additional capacity.
Enbridge has also been busy expanding its massive Mainline network, still working within its approved limits. The replacement of Line 3 added over 300,000 bbl/day of capacity at the end of 2021, while a number of smaller optimization projects have boosted capacity by another 125,000 bbl/day, bringing total capacity to over 3.3 million bbl/day.
Enbridge also says it can potentially add another 200,000 bbl/day of export capacity, subject to sufficient demand. The company is also exploring the prospects of reversing its Southern Lights diluent pipeline, which would add another 150,000 bbl/day of crude export volumes. Enbridge’s Express Pipeline, which runs south to the Rocky Mountains region, also has an additional 60,000 bbl/day of potential expansion capacity.
Plains Midstream Canada also recently announced an expansion of its bi-directional Rangeland Pipeline, which runs north to Edmonton, and south to the Rocky Mountains region. Once completed, Plains says capacity on the southbound section from Sundre, AB, to the U.S. would be increased from 20,000 to 100,000 bbl/day.
PIPELINE NAME | kBBL/DAY | |
Keystone | ||
Mainline | ||
Southern Lights2 | ||
Express | ||
Rangeland | ||
TOTAL EXPANSION POTENTIAL |
Combined, that works out to 650,000 bbl/day of incremental capacity on existing pipelines. When added to the Trans Mountain Expansion, that would bring Western Canada’s egress capacity to over 5 million bbl/day.
THE RAIL CUSHION
Rail has become an important mode of transport for Western Canadian producers, particularly those who need to ship their product to refineries and export terminals in the U.S. Gulf Coast. Rail exports have levelled out at about 150,000 bbl/day in the past few years, representing a “floor” demand, regardless of pipeline capacity. However, when pipeline operators can’t meet demand, rail shipments have risen to as much as 400,000 bbl/day, which is assumed to be “peak” capacity.
SO, HOW MANY YEARS LEFT?
So the next question is — how many years until egress capacity becomes constrained again?
The oil sands industry hasn’t seen a major expansion since Fort Hills was commissioned in 2018. Factoring in the 2019 curtailment orders and onset of the COVID-19 pandemic in 2020, Western Canadian output has increased 3.3% annually since 2016. And all of that growth has come out of the oil sands.
Assuming an optimistic 3% annualized growth rate, Western Canadian output will grow annually by about 150,000 bbl/day. If refinery demand remains robust at 600,000 bbl/day, and rail exports hold steady at 150,000 bbl/day, then the Trans Mountain Expansion will be sufficient until early 2025.
After that, Western Canada’s oil producers will rely on the big three pipeline operators to follow through on their “organic growth” plans. Assuming all the mini-expansions get completed at some point (which is certainly not guaranteed), that should be enough to fill the gap until about 2029, after which rail operators will have to pick up the surplus.
Barring a major increase in rail volumes, or major slowdown in oil production, the next major system constraint is likely to occur in 2030.
PURCHASE DATASET
Canada's Export Pipelines: Capacity, Constraints and Future Egress Outlook
$50.00
MONTHLY DATASETS (JAN 2016 - DEC 2021):
• Western Canadian output (BC, AB, SK, MB, NWT, total)
• Regional refinery demand (BC, AB, SK, total)
• Pipeline volumes (Keystone, Mainline, Trans Mountain, total)
• Required egress capacity (calculated)
ANNUALIZED AVERAGES & FORECASTS (2016 to 2030)
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SOURCES:
OSM CRUDE OIL AND DILUENT PIPELINES
AER ST98: ALBERTA ENERGY OUTLOOK MAY 2022
CAPP 2019 CRUDE OIL FORECAST, MARKETS AND TRANSPORTATION NOV 2019
ENBRIDGE 2021 INVESTOR DAY PRESENTATION DEC 2021
PLAINS MIDSTREAM RANGELAND PIPELINE EXPANSION JUL 2019
MARKET INSIGHTS
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