TMX to shake up USWC, Pacific Aframax market

The looming start-up of the Trans Mountain Expansion (TMX) to Canada's Pacific coast is poised to reshuffle crude tanker flows in the region.

The expanded pipeline and marine terminal project, which will nearly triple the crude takeaway capacity from Alberta to Vancouver to 890,000 b/d, made a call for a combined 4.2mn bl of crude from shippers starting in April as it prepares to fill the new pipeline. Already, two cargoes have been heard sold to Asia-Pacific buyers in what has historically been a US west coast-dominated market.

Commercial operations on the pipeline are expected to begin in May.

With new access to Asia-Pacific markets, where oil demand is growing, Canadian crude will compete primarily with oil from Russia and the Middle East, but on the US west coast, where demand is stagnant at 1.4mn b/d, TMX crude will need to replace other supplies, shipbroker Poten said.

It will be difficult to dislodge medium sour Alaskan North Slope (ANS) crude, which makes up about a third of supplies on the US west coast, Poten said. Many US west coast refiners have been configured to run ANS for decades, and a well-integrated fleet of US flag tankers hauls ANS from Alaska to California and Washington, as required by the Jones Act.

Market participants expect Canadian heavy sours to compete most directly with similar grades from Ecuador, which supplied about 125,000 b/d of crude to California in 2023, according to data from Kpler. But Canadian crude holds a key advantage over Ecuadorian crude: Ecuadorian law requires that its exports be carried by Flopec, a state-owned shipping company, or companies under agreement with Flopec, which limits shipping competition and creates inflated freight rates.

Exceptions include cargoes when Flopec does not have tonnage in position or cargoes requiring ship sizes such as Suezmaxes, which Flopec does not operate.

The halt of crude production at Ecuador's Ishpingo, Tambococha and Tiputini (ITT) fields by 1 September also could reduce the country's output by 48,000 b/d in 2024, according to Petroecuador. To offset the loss of production, the company plans to drill 156 wells — up by 56pc compared with the 100 wells drilled in 2023 — in several blocks.

Asia-Pacific demand for Canadian crude

Meanwhile, Chinese refiners have already purchased two Aframax-size cargoes of TMX crude for June delivery. Asia-Pacific demand for Canadian crude is expected to increase, though how much demand materializes depends on the pricing of export supplies, the availability of suitable tonnage and the competitive response from other producers, Poten said.

In the first quarter of 2024, Vancouver-China Aframax rates ranged from $4.25mn to $5.5mn lumpsum, or $7.78/bl to $10.07/bl for Cold Lake crude, according to Argus data. But shipowners likely would reposition their tonnage to or near Vancouver from other regions if rates remain at those levels, a shipowner said.

An increase in vessel availability would create downward pressure on rates, but some shipowners already involved in the US west coast market might charge a premium to leave the region for Asia-Pacific, market participants said.

In anticipation of volatile freight rates, at least eight Aframaxes will be used on time-charters for two TMX shippers with the intention to use them in Vancouver, market participants said.

By Tray Swanson