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Canadian Heavy Inches Up After Trans Mountain Approval

The discount at which Canadian crude trades to U.S. WTI narrowed this week after the country’s energy regulator approved a change in the construction plans of the Trans Mountain pipeline, sealing its completion.

Western Canadian Select, the local benchmark, traded at a discount of around $19 per barrel to West Texas Intermediate at the time of writing.

The government-owned Trans Mountain company last year requested regulators allow it to install a pipeline with a smaller diameter on a short section of the expanded pipeline after coming across difficult drilling conditions.

In response, the Canada Energy Regulator scheduled a hearing for so Trans Mountain can elaborate on the reasons for this request. The CER had previously rejected the request, citing inadequate addressing of concerns related to pipeline integrity and the environment.

Following this hearing, the CER granted Trans Mountain permission to change its initial construction plan for the final stretch of the pipeline, effectively guaranteeing its completion. Earlier this month, Trans Mountain said it planned to start filling the expanded pipeline in March or May.

The expanded pipeline will triple the capacity of the original pipeline to 890,000 barrels per day from 300,000 bpd to carry crude from Alberta’s oil sands to British Columbia on the Pacific Coast. The expansion project has been fraught with problems since its inception but its importance for Canada’s oil industry seems to have won over environmentalist opposition and regulatory obstacles.

Producers in Alberta are already boosting their production in anticipation of the new transportation capacity. The province’s average daily for November topped 4 million barrels daily, up by 330,000 bpd. There are production ramp-up plans for this year as well, from leading producers such as Cenovus and Canadian Natural Resources.

The completion of the Trans Mountain pipeline is the key to these plans materializing and to Canadian crude narrowing the gap with West Texas Intermediate even further.

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By Charles Kennedy for Oilprice.com

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