In May 2024, the Trans Mountain Expansion Project began operating. It nearly triples the capacity of the only pipeline that carries Alberta crude to Canada's Pacific coast, from 300,000 barrels a day to 890,000 barrels a day, by adding 590,000 barrels a day along a route that broadly follows the original line from Edmonton to Burnaby, near Vancouver. After years of legal challenges, cost overruns and a government takeover, the oil is flowing.
The project's significance is easiest to understand through one statistic. Canada produced an average of 4.6 million barrels a day of crude in 2023, nearly three times its 1.7 million barrels a day of refinery capacity, and almost all the surplus has gone to one customer. US imports from Canada have averaged about 3.7 million barrels a day since 2020, roughly 79 per cent of Canadian crude production over that period. Trans Mountain is Canada's first serious attempt in decades to reduce that dependence.
The captive seller problem
The US Energy Information Administration has described how Canada's crude has become increasingly central to American refineries. In 2023, 60 per cent of US crude imports came from Canada, up from 33 per cent in 2013. Canadian crude accounted for 24 per cent of US refinery throughput, up from 17 per cent. Many US refineries, particularly in the Midwest and Rocky Mountain regions, are configured to process heavy oil sands crude, and pipelines and rail connect them directly to Alberta.
That relationship has benefited both sides, but it has also left Canadian producers as captive sellers. When pipeline capacity out of Alberta was tight, Western Canadian heavy crude traded at deep discounts to US benchmarks, because producers had few alternatives. The discount was a transfer of value from Canadian producers and governments to US refiners.
The EIA expected the new capacity, nearly 600,000 barrels a day, to reduce that discount and encourage increased production. That is the economic case for the line: not that Asia will buy all of it, but that the option to sell to Asia will make US buyers pay more.
The cost of the door
The economic case has to be weighed against the cost. The Canadian government bought the existing pipeline and the expansion project from Kinder Morgan for CA$4.5 billion in 2018 and created Trans Mountain Corporation to finish it. The project faced repeated legal challenges from environmental groups and some First Nations, and its construction cost rose many times over the original estimate.
Ottawa has said it intends to sell the pipeline eventually. The price it receives will depend on the tolls shippers pay and on how much of the capital cost the government is prepared to write off. Taxpayers are unlikely to recover the full cost. The question is whether the higher prices Canadian producers receive, and the royalties and taxes those generate, justify the public investment.
Who buys
The early cargoes from the expanded terminal have gone to a mix of destinations, including US West Coast refineries and buyers in Asia, with China prominent among them. The US West Coast is a natural market: it is not connected by pipeline to Canadian or US inland production and imports much of its crude by sea. Asian buyers offer diversification and, potentially, higher prices for heavy sour crude when Middle East supply is constrained.
The terminal has physical limits. The Westridge Marine Terminal in Burnaby serves Aframax tankers, smaller than the very large crude carriers that dominate long-haul trade to Asia. Some cargoes are transferred to larger ships offshore, which adds cost. That means Canadian crude reaching Asia is not as competitive as Middle Eastern crude on freight, and its price advantage depends on the discount at which it is sold.
Production growth
Alberta accounted for 82.7 per cent of Canadian crude production in 2022, up from 76.1 per cent in 2012. Canada's output rose almost 2.0 million barrels a day between 2009 and 2019, dipped in 2020, and has since returned to growth. The EIA expects Canada to add about 0.3 million barrels a day of liquids supply through 2025, one of four non-OPEC+ countries, with the United States, Brazil and Guyana, driving near-term supply growth.
Trans Mountain makes that growth possible. Without new takeaway capacity, more production would simply widen discounts. With it, oil sands operators can expand output with more confidence that they can sell it at a reasonable price.
There is a quieter benefit at home as well. Before the expansion, the existing Trans Mountain line was frequently oversubscribed, and shippers had their nominations cut back. Apportionment of that kind forces producers to store crude, sell it at a discount into other systems, or move it by rail at higher cost. With nearly three times the capacity, the line should end chronic apportionment on the western route, giving producers more predictable access and reducing the need for rail shipments, which are more expensive and carry their own safety concerns.
Climate commitments
Canada has committed to cutting emissions and to capping oil and gas sector emissions. A pipeline that enables more oil sands production sits uneasily with those goals. The government's position has been that oil and gas revenues help finance the transition and that the world will continue to need oil for some time, so Canada should capture a fair price for what it produces.
That argument has some force, but it carries a long-term risk. Trans Mountain is a multi-decade asset. If global oil demand peaks and declines in the 2030s, as several forecasters expect, a pipeline built to carry growing volumes could become underused before its costs are recovered. The government will carry much of that risk, whether or not it sells the line.
A strategic hedge
The best way to judge Trans Mountain is as a strategic hedge. It gives Canada an export route that does not depend on US refiners or US policy. In a period when trade relations between the two countries could become less predictable, that option has value beyond the immediate change in crude discounts.
Whether that value justifies the cost will become clearer over the next few years, as tolls are set, the pipeline is sold or not, and the discount on Canadian heavy crude settles. The early evidence of narrower discounts is encouraging for producers. The bill is still being added up.