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Energy Infrastructure: Canadian Export Primer
Extra! Extra! We Need Exports!
The Canadian economy, like many global peers, is heavily reliant on energy as a factor of production; however, Canada has a unique hand to play given the abundance of natural resources (4th largest oil reserves; 5th largest natural gas producer). We have seen the globalization of energy markets over recent decades with scale and technological advancements being made in both crude and natural gas transportation.
Despite Canada being somewhat delayed in direct participation in global energy markets, it has benefited from its trading partnership with the largest energy consumer in the world, the U.S., and will soon be more globally competitive with major export projects being placed into service by mid-decade. The North American energy trade has been particularly beneficial for crude producers in Canada given the high demand for heavy crude by US refiners, and given pipeline connectivity, economics for Canadian production have not been eroded by transportation costs.
Oil has been Canada’s largest export product for the past 15 years, accounting for $144bn of exports in 2022 alone. Natural gas accounted for $25bn of exports in 2022. There are only a handful of transmission pipelines that connect Canada to demand centers south of the border, but the complex nature of the systems provides market intricacies resulting in volatility in Canadian energy fundamentals that are closely watched by all market participants.
This report highlights many considerations for our recent research initiations on Enbridge (ENB-T; OP; PT$56.00) and TC Energy (TRP-T; SP; PT$54.00).
Energy Exports Moving the Needle for Canada
Total energy exports from Canada recorded $229bn of value in 2022, which represents nearly 30% of the country’s total merchandise exports. Canada is a net exporter of both crude and natural gas, with crude representing over 60% of all energy exports, it continues to be a core piece to Canada’s trading proposition. By province, Alberta supplied ~70% of the country’s energy exports, followed by 11% from B.C.
Fundamental Changes Ahead Given New Market Access Projects
Canada is on the verge of pivotal market changes for both oil and natural gas. The Trans Mountain Expansion is nearing completion and will add 590 mbbl/d of heavy oil egress for Alberta producers. Though regulatory concerns continue to flag the project, many market participants are optimistic for an H1/24 start-up. Natural gas is also at an inflection point with LNG exports expected to begin shipping in 2025. The enhanced market access developments are expected to improve local commodity pricing for oil and gas producers and support volume growth.
Highlighting Export Pipelines
The physical distance between the WCSB and attractive demand markets has essentially required the use of pipelines to ensure economics for producers and users of Canadian energy. We highlight major crude egress pipelines like ENB’s Mainline, TRP’s Keystone and the government of Canada’s Trans Mountain. Natural gas reaches US markets through TRP’s Mainline and Foothill System, ENB’s BC Pipeline and Pembina’s Alliance Pipeline.
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