Asian refiners are taking many of the early crude cargoes from the new TMX pipeline, in what Canadian producers hope will be a boost for oil sands exports.
The federally owned 590,000 b/d Trans Mountain Expansion (TMX) project tripled the capacity of Trans Mountain's system to 890,000 b/d when it opened this month. The line creates a larger link from Alberta's growing oil sands production to the west coast port of Burnaby near Vancouver and direct access to lucrative Pacific Rim markets, where buyers are eager for heavy sour crude.
Canadian producer Suncor will start loading the first heavy crude from TMX on 18 May after selling it to Chinese refiner Sinochem on 20 March. The cargo of AWB — a heavy sour grade with a high total acid number (Tan) — will reach China in June on the Aframax Dubai Angel. Suncor has sold another May-loading AWB cargo to Chinese oil firm Sinopec's trading arm Unipec.
Suncor was among the first to time-charter 80,000t Aframaxes and has removed three of the vessels from the spot market to ferry crude from Vancouver over the next three years. PetroChina has placed at least one tanker on a time charter for the same reason, and Shell and US refiner Phillips 66 have at least two each. Shippers are limited to using Aframax tankers loading up to 550,000 bl because of restrictions in the waterways around Vancouver. They can send these smaller ships directly to Asia, or to refineries on the US west coast.
Both options appear workable for Canadian crude. Valero and Chevron were among the first buyers of heavy sour Cold Lake from TMX, and Marathon Petroleum may soon follow. "We will be a significant beneficiary because we will receive incremental Canadian advantaged crude," Marathon chief commercial officer Rick Hessling says. The firm operates the 119,000 b/d Anacortes and 363,000 b/d Los Angeles refineries on the US west coast.
US refiners are likely to blend light and heavy Canadian crudes from TMX to replicate Alaska's medium sour ANS. At least one cargo of the US grade is going to northeast Asia this month. And buyers can consolidate Aframax cargoes by ship-to-ship transfer at the Pacific Area Lightering zone off Los Angeles to put together 2mn bl very large crude carrier (VLCC) shipments for Asia. Shell already has a deal to supply a VLCC of AWB to Indian refiner Reliance in July using this method.
Devil in the dilbit details
Pricing is proving contentious early on. Price reporting agency Platts — with whom Argus competes — launched assessments on 22 April for Pacific Dilbit and Low Tan dilbit crudes loading at Westridge, matching the grades that Trans Mountain intends to ship on the new line. Platts says it will assess the market as differentials to calendar-month averages of WTI and Ice Brent, a common basis for US pipeline trade. Some offers have filtered through on this basis. But most cargoes have been sold as deliveries to Shandong province in China and are trading at differentials to Ice Brent's futures contract two months forward from delivery.
The classification of "dilbit" — short for diluted bitumen — could also pose tax problems for Chinese refiners. They are bound by specific import quotas for crude and bitumen, a category that dilbit would traditionally fall under. Sinochem has requested bills of lading naming AWB rather than Pacific Dilbit.
Loose ends remain over the TMX project, including the final tolls that will apply to crude shippers for their lengthy contracts on the pipeline. These firms are likely to have to bear a sizeable portion of the project's cost overruns. And some shippers planning to move low-Tan crudes are looking for tighter specifications on TMX to match other export lines and avoid market inefficiencies. Both issues are with Canada's regulator.
