CER: Canada’s oil pipeline capacity in 2024

This article was published by the Canada Energy Regulator on May 8, 2024.

Crude oil production has been growing in western Canada, with Alberta hitting record-high production of 4.53 million barrels per day (MMb/d) in December 2023. The Trans Mountain Expanded System (Expanded System), once fully in-service, will add 590 thousand barrels per day (Mb/d) of new capacity and increase total western Canadian crude oil export pipeline capacity by 13 per cent, helping to relieve capacity constraints on export pipelines.

Major oil export pipelines from western Canada – Trans Mountain (existing system), Keystone, and the Enbridge Mainline – are running at, or near, 100 per cent utilization (Figure 1). High utilization indicates demand to use pipelines is also very high, and that spare capacity on export pipelines has become limited (Figure 1)⁽¹⁾.

Figure 1: Crude oil volumes transported from western Canada relative to available pipeline capacity from 2018 to 2023

With the recent high utilization of oil pipeline capacity, crude-by-rail exports have increased in the past six months by 53 per cent. Also, more oil has been placed into storage in western Canada in recent months. Some of this oil will be used to initially fill the line (known as line fill for new capacity of the Expanded System, while other oil added to storage is likely waiting for capacity constraints to ease once the Expanded System comes online.

High WCS differential decreases profit per barrel for western Canadian producers

The recent growth in oil production and high utilization of oil pipeline capacity has widened the difference, also known as a price differential, between Western Canadian Select (WCS) and West Texas Intermediate (WTI). WCS is typically discounted relative to United States produced WTI because WCS is a heavier crude oil that costs more to refine than WTI light oil, and because of the cost to ship WCS from western Canada to Cushing, Oklahoma, where WTI is commonly bought and sold. When pipeline capacity becomes constrained, oil that cannot be exported by a pipeline is often exported by rail, which generally requires a wider differential to justify the higher cost of rail transportation.

In 2023, WCS was valued at an average of US$17.90 per barrel less than WTI. Early in 2024, that discount had widened to about US$18.50 per barrel (Figure 2). A wider differential generally reduces the netbacks or profitability of western Canadian crude oil producers, but also means domestic refineries can acquire lower cost crude oil. The discount on WCS has been reduced in recent months⁽²⁾ as the Expanded System’s in-service date nears. In general, the additional capacity is expected to increase the value of WCS and other Canadian crude oils relative to WTI.

Figure 2: Western Canada crude oil production & storage inventory levels relative to the WTI-WCS differential

Trans Mountain before and after

The current Trans Mountain (non-expanded) pipeline transports crude oil to the Parkland Burnaby Refinery, refineries in Washington State, and limited volumes onto tankers at the Westridge Dock. The pipeline also transports refined petroleum products to markets in British Columbia.⁽³⁾ The Expanded System is expected to increase market access for western Canadian crude oil producers, especially to potentially higher-priced markets in California and the Asia Pacific region.

Once fully in-service, the Expanded System will roughly triple capacity from 300 Mb/d to 890 Mb/d. This increase of 590 Mb/d is the largest addition of crude oil export capacity in Canada in many years. The last major increase in oil export capacity was the Enbridge Mainline Line 3 Replacement Program, which came into service in October 2021, adding 370 Mb/d of export capacity.⁽⁴⁾

Crude oil shippers (producers, refiners, and marketers) have already contracted 80 per cent of the Expanded System’s capacity with long term take-or-pay contracts. The remaining 20 per cent is available for uncontracted (or spot) shipments on a month-to-month basis. Unlike the 80 per cent contracted capacity, the 20 per cent uncontracted capacity usage will likely fluctuate depending on market conditions such as crude oil pricing in key international markets, transportation costs on the Expanded System versus competing pipelines, as well as the amount of crude oil available to export.

Figure 3: Western Canada’s oil export pipeline capacities pre and post expansion

Overall, the capacity of the Expanded System will represent 17 per cent of the total pipeline export capacity available to Canadian crude oil shippers. The Enbridge Mainline will remain the largest export pipeline, with 63 per cent of all available pipeline capacity after the Trans Mountain Expanded System is placed into service (Figure 3).

Pipeline systems do not have to run at 100 per cent utilization to be effectively full. No pipeline is 100 per cent efficient, meaning a pipeline can be effectively full when it is somewhere between 95 per cent and 100 per cent utilized. This largely explains why, in Figure 1, exports by rail can increase even when total pipeline flows are less than available pipeline capacity.

Footnotes

1. Pipeline systems do not have to run at 100 per cent utilization to be effectively full. No pipeline is 100 per cent efficient, meaning a pipeline can be effectively full when it is somewhere between 95 per cent and 100 per cent utilized. This largely explains why, in Figure 1, exports by rail can increase even when total pipeline flows are less than available pipeline capacity.
2. The differential narrowed to less than US$13 per barrel in early April 2024.
3. Trans Mountain’s shipments of refined petroleum products averaged 27,300 b/d in 2023.
4. Prior to the Line 3 Replacement Program, the last major new export pipeline was Keystone in 2010, which had an initial capacity of about 435 Mb/d [Document C22525-1]. After further investments over the years, as of September 2023, Keystone has a capacity of over 600 Mb/d. Enbridge Mainline’s Alberta Clipper Project, also known as Line 67, came online in 2010 at 450 Mb/d [Document A0Z0V6] of capacity and was expanded twice from 2014 to 2015, increasing that capacity to 800 Mb/d.