Introduction

In a surprising twist that could impact Canada's oil industry, Trans Mountain oil pipeline has revised its forecasts for the amount of oil expected to be transported through its system over the next three years.

Key Findings

These adjustments, submitted to the Canada Energy Regulator, reveal that the demand for shipping on the newly expanded pipeline is growing at a much slower pace than originally anticipated.

Analysts have pointed out that a significant portion—20%—of the pipeline's capacity reserved for spot shipments is currently going unused. This underutilization is primarily due to the higher tolls set by the government-owned Trans Mountain compared to its main competitor, Enbridge's Mainline system.

Impact on Revenue

With these lowered forecasts, questions arise about Trans Mountain's ability to generate essential revenue and its attractiveness to potential private sector buyers.

The Canadian government has made it clear that it seeks to sell the pipeline eventually, complicating the outlook for the project.

Export Market Dependency

The challenge of diversifying Canadian oil exports away from the U.S. market—currently consuming 90% of Canada's crude—also remains apparent. At present, Trans Mountain is Canada's only operational east-west pipeline.

Operational Challenges

Launched in May 2024, the newly expanded pipeline is designed to transport 890,000 barrels per day (b/d) from Alberta to Canada’s Pacific Coast. However, the operator's expectations have not materialized.

In its first eight months, the pipeline recorded only 18,500 b/d of spot shipments, falling short of the anticipated 30,600 b/d.

Financial Projections

Financially, this translates to lowered revenue projections for Trans Mountain: estimates have shifted for 2025, 2026, and 2027.

Toll Rate Considerations

The dynamics surrounding toll rates have also come under scrutiny. Due to massive budget overruns, contracted shippers are now facing tolls nearly double what was originally expected.

Some major contracted shippers, such as Canadian Natural Resources Ltd and Cenovus Energy, have voiced their concerns.

Competitive Landscape

In a stark contrast, Trans Mountain’s competitor, Enbridge, boasts a fully utilized spot capacity and toll rates that are approximately half of Trans Mountain's.

Investment Dilemma

According to energy analyst Rory Johnston, the current situation emphasizes the broader dilemma facing pipeline projects, which struggle to attract private investment due to these escalating costs.

Potential Market Shifts

However, market conditions are volatile, and a sudden policy shift from the U.S. could lead to unforeseen changes in the demand for Trans Mountain's services.

Conclusion

With the Trans Mountain pipeline at a crossroads, the implications of these lowered forecasts extend beyond merely the financial realm, hinting at the larger questions of Canada’s energy strategy and the future of its oil industry.