TMX pipeline making a difference, likely to curb differential volatility, oil companies say

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The difference in pricing between U.S. and Canadian oil may fluctuate slightly but is likely to avoid significant volatility and the “blowouts” of the past due to the start of Canada’s newest oil pipeline, a top Suncor Energy Inc. official said on Wednesday.

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The Trans Mountain pipeline expansion (TMX), which officially opened on May 1 and connects Alberta and the British Columbia coast, helped Canada’s oil producers get better prices and cut the differential between Canadian and U.S. oil in the second quarter.

“(TMX) certainly provides … structural help,” Kris Smith, Suncor’s chief financial officer, said on a conference call to discuss the company’s second quarter earnings. “That said you are still going to see that light-heavy differential move around a little bit depending on what’s going on in the market…. Our view is that we are going to continue to see that differential be supported in the low- to mid-teens.”

In the second quarter, the differential narrowed to US$13.55 per barrel, down 18 per cent compared to the average during the period between 2021 and 2023, Bank of Nova Scotia analyst Jason Bouvier said in a note on July 15. Meg Energy Corp. said last week that it expects the differential to be within a range of US$10 to US$15 in the long term.

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The differential, though, has grown wider since the quarter ended due to refinery outages, surprising some analysts.

Since the oil produced in Canada is heavy and is further away from its main markets, it is priced at a discount when compared to the light oil produced in the United States. The launch of the TMX was expected to help reduce this differential by providing Canadian oil producers access to new markets and a cheaper transport route.

Owned by the federal government, TMX opened earlier this year after billions of dollars of cost hikes, several protests from environmentalists and the discovery of about 250,000 artifacts during construction.

The second quarter was the first in which Canada’s oil producers got a chance to taste the benefits of the new pipeline.

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“We have seen TMX have the impact that … we were looking for,” said Geoff Murray, an executive vice-president at Cenovus Energy Inc., on an earnings conference call last week. “We have been provided a relatively exciting access to the globe and that’s had its impact back into Alberta.”

In the same vein, Scott Stauth, president of Canadian Natural Resources Ltd., said the pipeline has had a positive impact on Canada’s economy and represents “a significant achievement” for all Canadians.

Suncor said that it expected to benefit from TMX in a different way. In May, for instance, it said it will be banking on its trading platform to remove middlemen and directly negotiate with new customers to get a “unique” advantage once it starts shipping to additional regions through the TMX.

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On Wednesday, Smith said that TMX was “definitely adding value” to the company and that Suncor was “pleased with what” it was seeing.

“There’s integration and there’s Suncor’s integration,” he said. “We don’t just take the product to the dock and sell it at the dock, we actually actively market into the end market themselves.”

Suncor reported better-than-expected results in its second quarter, which ran through June 30. It reported adjusted profit of $1.27 per share, compared with analysts’ average estimate of $1.08, according to Reuters.

The company said its refinery crude throughput increased to 430,500 barrels per day and its refinery utilization was 92 per cent in the second quarter of 2024, compared with 394,400 barrels per day and 85 per cent in the prior year’s quarter.

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nkarim@postmedia.com

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