Chinese Company Buys First Crude Cargo From Canadian Pipeline

A Chinese company has bought a cargo of Canadian crude, to be shipped via the expanded Trans Mountain pipeline in May-June, Bloomberg has reported, citing trading sources who wished to remain unnamed.

The buyer is Sinochem and the cargo is of 550,000 barrels of heavy crude produced by Suncor, the report added. The grade has similar properties to Iraq’s Basrah crude, the sources told Bloomberg.

The Canadian oil industry has eagerly awaited the completion of the Trans Mountain expansion, which would add 590,000 bpd to capacity, opening up international markets to Canadian crude from the country’s west coast.

Yet even before the pipeline is completed warnings have started coming in that it will only give oil producers a short break before they run out of capacity once again. The reason: producers are already ramping up production in anticipation of the additional offtake capacity and it will only take a couple of years or so for the additional production to exceed the additional capacity.

There are no other oil pipeline projects in the works in Canada and even the progress of the Trans Mountain expansion is something of a miracle after a series of delays and legal challenges from activists. These delays and challenges led to a sixfold increase in the project’s cost, from an original $3.4 billion to as much as $23 billion.

The pipeline, whose new total capacity will be close to 900,000 barrels daily, is slate to be put into operation later this year, with producers hoping this will help shrink the discount that Canadian crude has been suffering from to WTI because of transportation challenges.

U.S. refiners, on the other hand, are not eager for this discount to shrink, after many years of secure supply of cheap Canadian crude. The Sinochem deal, however, introduces international competitors into the supply equation.

By Irina Slav for Oilprice.com

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