Canada pushes Trans Mountain pipeline to sell oil to China far beyond US shores

June 7, 2018

As it battles over trade with its big southern neighbor, Canada is looking westward for new markets for its oil.

In the thick of a bitter trade dispute with the United States, the only customer for its crude oil, the Canadian government has opted to buy a pipeline project that will more than double the oil it can send to the West Coast — and then on to new markets in China.

While the pipeline project has been moving on its own timeline, the purchase coincidentally comes during one of the thorniest periods in U.S.-Canadian trade relations. Analysts say ironically that should in fact help Canadian Prime Minister Justin Trudeau find some support for the controversial project, which has pit the province of British Columbia against Alberta and has prompted protests across the country.

The construction is slated to begin this summer, but it is opposed by the British Columbia government, local governments, environmental interests and even groups in Washington state. Canada has long sought a pipeline solution, both to the east and west coast, and has so far failed. There is a lot to gain from moving its oil resources outside of North America, including much higher prices and access to the world's fastest growing market.

Trudeau 's government late last month announced it would buy Trans Mountain pipeline,its British Columbia terminal and expansion project for about $3.5 billion, after owner Kinder Morgan Canada found the project too risky. Trudeau has said he wants to make sure the pipeline expansion gets built and then sold to a new operator so Canada can send oil on to new customers in Asia.

"We are going to ensure that it gets built so that we can get our resources to new markets," Trudeau told Bloomberg News.

The Canadian government has long said it wants a way to expand its export horizons. The current 715-mile pipeline carries oil to markets on the U.S. West Coast, and the expansion along 610 miles would also provide more oil to China. The pipeline runs from Alberta to Burnaby, a port city in Vancouver suburbs.

"Canada is the fifth largest in production and third-largest oil exporter in the world, after Saudi Arabia and Russia," said Jackie Forrest, vice president of energy research at Arc Financial Group. She said Canada produces 4.6 million barrels a day and exports 3.8 million barrels a day to the United States. "When we get to be the third-largest exporter, it makes sense to have more than one customer."

By selling oil to China, Canada would immediately benefit from a higher international price and free some of the currently landlocked crude that is also shipped by expensive rail freight to the United States. There have been small intermittent purchases by Chinese buyers in the past, but nothing consistent, and the United States is thought to be the current sole customer for Canadian crude.

Forrest said with the government's purchase, odds have increased for the pipeline's construction, which would place a second line parallel to an existing one. The enlarged Trans Mountain would be able to transport 890,000 barrels a day, up from 300,000, at a cost of $7.4 billion. But there's a legal ruling still that has to be made before,BC's Horgan has stated all along that BC has the legal right to determine what crosses its borders.