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‘Remarkably Optimistic’: Trans Mountain to Transfer Pricing Control to Canadian Oil and Gas Producers

Canada’s oil and gas industry is on the brink of a significant transformation with the impending commencement of commercial operations for the Trans Mountain oil pipeline expansion on May 1 and the near completion of a massive LNG export facility on the West Coast. These developments have ignited optimism among executives, who foresee higher prices and expanded market access, marking the first major increase in take-away capacity in over a decade. Analysts are bullish on the sector’s prospects, anticipating a surge in share prices as producers tap into new foreign markets.

The upbeat outlook for Western Canada’s energy sector was a focal point at this week’s BMO Capital Markets CAPP Energy Symposium in Toronto. Randy Ollenberger, a leading oil and gas equity analyst at the bank, characterized the long-awaited projects as “very, very bullish for the sector.” He emphasized the significance of expanding pipeline capacity and LNG facilities, highlighting the potential for companies to generate substantial surplus cash flow for shareholders.

For years, transporting oil and gas from Western Canada to overseas markets has been a daunting challenge, with the industry heavily reliant on exports to the United States. However, with Canadian crude trading at a discount to the U.S. benchmark due to its heavier grade and transportation costs, the need for increased capacity has become imperative. Alberta’s government even resorted to temporary production limits in 2018 to address the price gap, which exceeded US$40 per barrel at its peak.

Looking ahead to 2024, TD Bank predicts that Canada could witness a global record for production increases, with international demand for oil experiencing its most significant growth in 13 years. The completion of key infrastructure projects such as the Trans Mountain expansion and LNG Canada export facility is poised to bolster the industry’s resilience and competitiveness on the global stage.

Executives from leading energy companies, including Tamarack Valley Energy, NuVista Energy, and Birchcliff Energy, are optimistic about the transformative impact of these projects on their operations. With increased pipeline capacity, producers anticipate accessing higher world pricing for their products and reducing reliance on alternative transportation methods like rail.

Moreover, the shift in pricing power from refiners to producers is expected to create a more competitive environment, benefiting Canadian heavy oil producers. As the industry gears up for a new era of growth and opportunity, stakeholders are optimistic about the positive trajectory of Canada’s oil and gas sector.

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