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Canada’s Pipeline Problem Returns as Oil Sands Output Surges
Crude Prices Are Already Falling Amid a Glut of Supplies
The Canadian oil industry’s two-year reprieve from pipeline bottlenecks may be nearing an end as global crude glut weighs on prices.
Enbridge Inc. rationed the most space on its Mainline pipeline system for February than in any month since March 2024, which was before the expanded Trans Mountain pipeline added almost 600,000 barrels a day of export capacity for Western Canada.
Shippers on the Mainline were required to cut the volumes they seek to send by 22% for dense, high-sulfur oil from Alberta’s oil sands and by 24% for light crude, a practice known as apportionment.
The increase in rationing threatens to widen the discount for Canadian oil at a time when crude prices are already falling amid a glut of supplies. Oil sands production is particularly exposed after the U.S. overthrew Venezuelan President Nicolás Maduro earlier this month. President Donald Trump has said the U.S. plans to sell as much as 50 million barrels of Venezuelan crude — a grade similar to Canadian heavy oil — onto the international market following the leadership change.
The discount of Canadian heavy crude in Alberta to a monthly average for the U.S. benchmark West Texas Intermediate has widened to $14.80 a barrel from about $13 a barrel before Maduro’s capture, according to Modern Commodities and General Index pricing.
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Canada’s oil producers have benefited from almost two years of ample pipeline capacity, particularly since the Trans Mountain expansion began operating in May 2024. The line, which runs from Alberta to the Vancouver area, allowed oil-sands producers to export significant volumes to China for the first time and reduced the reliance on U.S. refiners. Since then, Canadian heavy crude has traded at an average discount of about $12 a barrel to the U.S. benchmark, compared with almost $17 a barrel in the year before the expansion.
Pipeline bottlenecks became so severe that Alberta imposed production limits on large producers in 2018, after the discount on heavy crude surged to nearly $50 a barrel.
The expansion of export capacity has allowed producers to ramp up output, particularly from in-situ oil sands wells. Alberta’s production rose to a record 4.4 million barrels a day in November, according to provincial data. The province accounts for about 85% of Canada’s oil output, making the country the world’s fourth-largest producer behind the U.S., Russia and Saudi Arabia.
The ramping up of oil output has pipeline companies already planning for their next expansions. Enbridge reached a final investment decision in November to add 150,000 barrels a day of capacity to its Mainline system and 100,000 barrels a day to its Flanagan South system running from the Midwest to the Gulf at a cost of about $1.4 billion. Trans Mountain plans to boost capacity to 1.25 million barrels a day over the next four or five years from 890,000 barrels, using drag-reducing agents and extra pumping capacity.
The most ambitious plan, led by Alberta and backed by the federal government, is to build a new 1 million-barrel-a-day oil pipeline to British Columbia’s coast. A formal proposal is expected later this year.
