For decades, Canadian oil exporters have only had one destination: south of the border. Yet things are changing. There’s a new big buyer in town, and it’s buying a lot: China.
Canadian crude oil flows abroad began to change direction earlier this year, after the trade dispute ignited by U.S. President Trump prompted exporters to seek new markets, conveniently made more easily accessible by the expanded Trans Mountain pipeline.
The pipeline went into operation with its new capacity of 890,000 barrels daily in 2024. Between the launch of the expanded pipe and spring this year, the average flow rates for shipment to China reached 207,000 barrels daily. That compares with an average of 173,000 barrels daily pumped to the United States. Since spring, the shift has become even more marked.
October is on track to see record flows of Canadian oil to China as the latter continues to stockpile on the world’s most traded commodity amid expectations of a glut that has pushed prices lower internationally. Bloomberg reported the trend, citing data from Vortexa showing that as much as 70% of oil cargoes departing British Columbia this month are heading to China. Since the start of October, 5 million barrels have been shipped from Vancouver in total, the data showed. This was an all-time high for the first half of any month.
What’s more, it might actually be more than 70% of the Canadian crude shipped from the coast of British Columbia that is going to China. Per Bloomberg, the remainder of the cargoes were carried to the West Coast, off Los Angeles, where the oil is normally transferred to larger tankers before it is shipped to its final destination, which may well be China.
The world’s largest oil importer has been buying a lot of crude this year, taking advantage of the price decline to stock up for supply security. China has mostly preferred discounted Russian and Iranian crude, but any crude is a bargain this year, it seems, so it has been stocking up on Canadian oil, too.
The average stockpiling rate for the year so far has been estimated at around 990,000 barrels daily. Over the next year or so, this rate may soften to around half a million barrels daily, according to Goldman Sachs. Then again, it might remain strong if prices remain weak—because China is building more oil storage capacity.
This year and next will see a total of 11 new storage sites built across the country, Reuters reported earlier this month, noting that the combined capacity of the new sites would come in at some 169 million barrels. The amount is equal to two weeks’ worth of crude oil imports, Reuters noted in its report. It compares to new oil storage capacity additions of between 180 and 190 million barrels for the period between 2020 and 2024, according to data from Vortexa and Kpler.
Oil prices may be weak overall, but for Canadian crude, the surge in shipments to China prompted a jump earlier this year, with Bloomberg noting in its report on exports that Western Canadian Select is trading at the highest since July, even though the fourth quarter is normally trough season for oil prices.
In this demand context, it is hardly a surprise that earlier this year, forecasters from S&P Global said they expected Canadian oil sands production to hit an all-time high this year, at 3.5 million barrels daily. Not only that, the commodity analysts said in June, but oil sands production would continue to grow steadily, reaching 3.9 million barrels daily by 2030, despite the Canadian federal government’s focus on decarbonisation.
Meanwhile, the Trans Mountain pipeline is expected to reach a capacity utilization rate of 84% this year, which would be up from 77% in 2024, due to high toll rates. Eventually, the utilization rate of the pipeline may reach 92% in 2027, all thanks to demand from Asia, led by China.
Interestingly, even though flows of crude to the United States via the Trans Mountain pipeline have declined, there is now talk to boost overall flows south by resurrecting the Keystone XL project. The news came from the Financial Times last week, with the publication writing that both Canadian and U.S. officials had signaled the restart of Keystone XL was a possibility. “We are open to discussing the advancement of continental energy security, if we also address the irritants for steel and aluminium,” Canada’s energy minister, Tim Hidgson, told the FT.
All these developments suggest that despite doubts about global oil demand, demand is pretty healthy in at least two places, which also happen to be the biggest consumers—even if the consumption is partly driven by stockpiling. It is doubtful if Keystone XL would indeed be resurrected and built, but talk about a further expansion to the Trans Mountain might at some point translate into action.
By Irina Slav for Oilprice.com