Trans Mountain Gives Canadian Oil a Pacific Door. The Bill and the Buyers Will Decide Whether It Was Worth It

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. 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.

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. 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 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 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. Alberta accounted for 82.7 per cent of Canadian crude production in 2022, up from 76.1 per cent in 2012. Canada has committed to cutting emissions and to capping oil and gas sector emissions.

The best way to judge Trans Mountain is as a strategic hedge. 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.