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Canada’s oil producers plan higher output for this year and expect to earn more from their heavy crude once the long-delayed expanded Trans Mountain Pipeline enters into service.
The start date of the Trans Mountain Pipeline Expansion (TMX) is the key uncertainty this year for the Canadian oil industry, the benchmark Canadian heavy oil prices, and the revenues for the oil-producing province of Alberta.
Despite this uncertainty about the additional export capacity from Alberta’s oil sands, some of the biggest Canadian producers plan to boost production in the short to medium term.
The top liquids producer, Canadian Natural Resources, for example, announced last month its 2024 capital budget that targets exit 2024 production levels of around 1.455 million barrels of oil equivalent per day (boepd), up by around 40,000 boepd from the targeted exit 2023 production levels. The company also targets 2025 average annual production growth of approximately 4% to 5% compared to the 2024 average annual production levels.
“In the second half of the year, assuming commodities do not have material price declines in 2024, the program will shift to being weighted towards shorter cycle development opportunities to better align with incremental market egress, allowing us to maximize value for our shareholders,” Canadian Natural Resources said in December.
Cenovus Energy plans to invest capital this year primarily for progressing the West White Rose project “as well as incrementally growing production at the Foster Creek, Christina Lake and Sunrise oil sands facilities.”
Analysts expect tie-backs to existing oil sands facilities or expansion of operational sites by some of the biggest Canadian oil firms to boost Canada’s crude oil production by 8% by 2025.
Key to that expanded production would be the progress of TMX, the project that the Federal Government of Canada bought from Kinder Morgan back in 2018, together with related pipeline and terminal assets. That cost the federal government $3.37 billion (C$4.5 billion) at the time. Since then, the costs for the expansion of the pipeline have quadrupled to nearly $23 billion (C$30.9 billion) and could continue to increase.
The expansion project has also faced continuous delays over the years. The latest roadblock emerged in December when the Canadian regulator denied a variance request from the project developer to move a small section of the pipeline due to challenging drilling conditions. Trans Mountain is now waiting to receive the reasons for the decision, the corporation said, adding that construction on the project was more than 97.8% complete.
Trans Mountain has previously said that it plans on achieving first oil on the expanded pipeline to the Westridge Marine Terminal by the end of the first quarter of 2024.
This week, the company said it plans to start line fill in March or May, depending on the diameter of pipe it uses and assuming there would be no other setbacks.
The expanded pipeline will triple the capacity of the original pipeline to 890,000 barrels per day (bpd) from 300,000 bpd to carry crude from Alberta’s oil sands to British Columbia on the Pacific Coast.
The sooner the expansion project is up and running, the higher Alberta’s takeaway capacity will be, narrowing the discount of the Western Canadian Select (WCS) crude to the U.S. benchmark WTI.
“Additional pipeline capacity to move oil out of the province next year is expected to support Alberta oil prices and narrow the discount between WTI and the Western Canadian Select (WCS). The completion of TMX in the second half of 2024 will help bring the differential to around US$14-15/bbl in the next two fiscal years,” Alberta’s government said in its 2023-24 Mid-year Fiscal Update and Economic Statement in November.
“Producers are expected to continue drilling at a solid pace ahead of TMX coming online in the second half of 2024,” the provincial government said.
“Increased takeaway capacity will help propel Alberta’s crude oil production from nearly 3.8 million barrels per day (bpd) in 2023 to over four million barrels bpd by 2026.”
