The Western Canadian oil sands industry is undergoing a significant transformation. Favorable economics, improved producer netbacks and improved market access are all conducive for an upswing in crude oil production from Western Canada driven primarily by growing production from oil sands in Alberta. Historically, constrained crude take-away pipeline capacity has resulted in heavily discounted crude oil prices in Western Canada impacting production growth in the region. Consequently, crude oil producers have relied on Crude-by-Rail (CBR) to ensure adequate market access. The recently completed 540 MBPD Transmountain Expansion (TMX) pipeline is significant for the region as it provides much needed incremental capacity, bolstering the outlook for crude oil growth from Western Canada.

Relevance of TMX

TMX has temporarily eased pipeline takeaway capacity constraints from Western Canada, potentially improving netbacks for benchmark crude Western Canadian Select (WCS). However, our fundamental analysis indicates challenges ahead as crude oil production is set to increase. Multiple oil sands projects (both greenfield and brownfield) are under various stages of development that are expected to increase production of raw bitumen by ~0.6 MBPD. Resultant crude oil supply in Western Canada (including growth in conventional oil/condensate and after bitumen upgrades, dilbit volume gross-up) is expected to increase from 5 Million BPD in 2023 to ~6 Million BPD by 2033. After netting out local refinery demand in Western Canada, crude oil available for exports from W. Canada is expected to increase to 5.0 Million BPD by 2027, surpassing current pipeline capacity (including TMX).