150928_Neil Earnest, Muse StancilThe proposed Trans Mountain Expansion Project (TMEP) adds $73.5 billion to the value of western Canadian oil according to a new report on the benefits of the expanded pipeline system.

The report is replacement evidence highlighting the economic need and benefits of TMEP. It was submitted to the National Energy Board (NEB) on September 25, 2015 after the NEB struck a 64-page section of the original 15,000-page report submitted in December 2013.

The replacement evidence, prepared by global consulting firm Muse Stancil, sets out a compelling business case for the Expansion Project — including the opportunity for Canadian oil producers to profitably connect to robust markets via an expanded Trans Mountain line. (A related analysis by the Conference Board of Canada, updated with information derived from Muse Stancil’s evidence, calculates that TMEP will generate an additional $24 billion in fiscal benefits to Canada over 20 years).

We recently spoke with Muse Stancil President Neil Earnest, author of the report for Trans Mountain, about the oil marketing opportunities the Project would create.

Your report indicates that an expanded Trans Mountain line will allow western Canadian shippers to access better prices for their oil. How did you determine this?

The results we offer up in our report are the output of a quantitative analysis. They are not just our opinion.

When we assess the crude oil pricing relationships between North America and northeast Asia, it is our view that both historically today and into the future, crude oil prices will be higher in northeast Asia than what you find in North America.

Is that for all grades of oil?

We assess that there will be an improvement in the Edmonton price for Canadian light crude oil as well as heavy crude oil.

Who will be buying Canadian oil?

It is our assessment that, on a technical basis, the refineries in northeast Asia and elsewhere in the Pacific Basin can process significant volumes of western Canadian crude oil. There’s a lot of installed refining capacity in northeast Asia that can already process Canadian (heavy) crude oil. Canadian (heavy) crude is not that different from any other crude oil in the world. And prices are higher in Asia.

How big are these markets?

Northeast Asia is a region that’s importing in excess of 10 million barrels a day of crude oil. China alone has almost 13 million barrels per day of refining capacity, and there are millions of barrels per day of refining capacity in other northeast Asia countries.

Shippers have already booked about 80 per cent of the capacity of the expanded line. Will the remaining capacity be in demand as well?

I think you can usefully consider the recent historical experience. The pipeline has been full for the last half-decade and shippers are paying sizeable per-barrel premiums to access the Trans Mountain capacity. That’s all historical fact.

We think the expanded Trans Mountain Pipeline will be used and is likely to be full on day one.