Replacement pipe is stored near crude oil storage tanks at Kinder Morgan's Trans Mountain Pipeline terminal in Kamloops, British Columbia, Canada November 15, 2016.CHRIS HELGREN/Reuters
Kinder Morgan Inc. has revealed a wider group of oil-company shippers on its contentious Trans Mountain pipeline as major energy companies face a looming export crunch.
Companies that have booked capacity on the 590,000-barrel-per-day pipeline expansion to Canada's Pacific coast now include Athabasca Oil Corp., MEG Energy Corp., Teck Resources Ltd. and Brion Energy Corp., a unit of state-run China National Petroleum Corp.
They replace Statoil ASA of Norway, CNOOC Ltd.-owned Nexen Energy ULC and Canadian Oil Sands Ltd., which are no longer listed as customers.
The updated roster is detailed in a prospectus for an initial public offering of restricted voting shares contemplated by the Houston-based company to help fund the $7.4-billion expansion, which would boost overall capacity on the westbound system to 890,000 barrels a day.
It comes ahead of a provincial election on Tuesday in British Columbia in which the pipeline has figured as a key wedge issue. Prime Minister Justin Trudeau approved the project last year, but it faces numerous court challenges, and B.C. NDP Leader John Horgan has been vocal in his opposition to the development. Among risks to the project spelled out in the prospectus are the impacts of a potential change in government as well as protests and blockades.
"While a number of key governmental approvals have been received with respect to the Trans Mountain Expansion Project, the completion, timing and costs of the Trans Mountain Expansion Project are still subject to significant risks," the company said in the document, filed last month.
The energy industry has grappled for years with tight export capacity, contributing to big discounts on prices for Canadian heavy crude. Prices have strengthened in recent weeks after a fire at the Syncrude Canada bitumen mining and upgrading project forced its owners to cut deliveries of synthetic crude.
But those gains are viewed as temporary, with new production from the oil sands poised to eclipse available capacity on existing pipelines.
Crude is set to flow from a series of multibillion-dollar expansions in northern Alberta later this year, including Suncor Energy Inc.'s massive Fort Hills complex and Canadian Natural Resources Ltd.'s expanding Horizon bitumen mine.
Without new export capacity, those barrels are likely to fetch less than they otherwise would as bottlenecks force producers to pay extra to move growing production by train, AltaCorp Capital Inc. analyst Dirk Lever said.
"It will drive the price of crude down in Canada, so the Canadian producers get less, the governments get less on the royalties for it, and it probably drives the price down to the point where rail becomes economic," he said in an interview.
Kinder Morgan has said construction on the Edmonton-to-Burnaby, B.C., pipeline expansion could start by September, with oil expected to flow by late 2019. The company sought new shippers for the conduit in March after it hiked shipping fees, prompting commitments to dip by 22,000 barrels a day or 3 per cent.
The new lineup reflects a series of big deals that has reduced foreign ownership in the oil sands. Athabasca purchased all of Statoil's holdings late last year, while Suncor bulked up with its takeover of rival Canadian Oil Sands. Meanwhile, CNOOC unit Nexen has been plagued by operational problems at its flagship Long Lake project.
Few are predicting that congestion spells a return to the deep discounts that saw Canadian heavy crude fetch as much as $40 per barrel under the U.S. benchmark. That's because the industry can move growing volumes by train.
On Thursday, Canadian Natural Resources president Steve Laut pegged rail capacity in Alberta at up to 900,000 barrels a day, a release valve he said would help prevent large blowouts in the price gap with U.S. crude, known as the differential.
"The reason you'll have differentials blow out is because you can't get oil out through the pipelines," he said. "That's not the case any more. Any oil that exceeds pipeline capacity will be transported by rail."
With a file from Jeffrey Jones in Calgary
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