APPEC: Shorter voyage, lower price makes TMX Canadian crude competitive to Asian buyers

The short voyage and competitive prices of heavy sour Western Canadian crudes transmitted via the Trans Mountain Expansion (TMX) pipeline offers an economic feedstock option for Asian buyers in addition to the supplies from the Middle East, despite high seaborne freight, said Wu Qiunan, Chief Economist of PetroChina International at S&P Global Commodity Insights' APPEC event Sept. 9.

In the Americas, the US and Brazil have been increasing their crude supplies to Asia, including China, while other streams are relatively stable. Looking forward, the flows from Guyana and Canada have the potential to grow production-wise, Wu said.

Asia's crude imports from the Americas were expected to grow 12.5% year on year to 4.16 million b/d in 2024, with WTI Midland and Tupi as the leading barrels, according to tanker tracking data from S&P Global Commodities at Sea(opens in a new tab).

But Canadian crude could increasingly make its way to Asia as Commodity Insights analysts expect Canadian crude production to increase by 315,000 b/d between Q3 2024 and Q1 2025, leading the world's non-OPEC production growth of 1.55 million b/d.

During APPEC, Wu said Canada's move to open its export terminal on the West Coast with TMX was a game changer because it shortened the voyage to 19 days from the over 45 days it took for crude loaded from the US Gulf to arrive in China.

The voyage is competitive to the roughly 20-day journey it takes for Middle East crude to land in Asia.

"It is a very good option for Asia to receive more from Canada," Wu said.

PetroChina is the sole Asian committed shipper to share 80% capacity of the 590,000 b/d TMX with nine producers and refiners in North America. The remaining 20% is reserved for spot shipments.

Freight levels

Currently, most of the crude cargoes from the west coast of Canada are carried by Aframax, while most crude barrels that go to Asia tend to be carried by VLCCs.

In late July, PetroChina co-loaded 1.1 million barrels of Access Western Blend transferred from the TMX pipeline with 900,000 barrels of Ecuadorian crude onto a VLCC. These AWB barrels were ship-to-ship from two Aframaxes. It was the first time for the Canadian barrels to run across the Pacific Ocean to Asia by a VLCC since TMX started commercial operation on May 1.

Wu said the freight cost of an Aframax for the voyage was more than double that of a VLCC.

"But the freight only accounts for a small proportion of the crude value," which allowed buyers to compare the economics of the two streams of supplies, he said.

The latest cargo of high TAN, heavy sour AWB via TMX was traded recently at a discount between the high $5s/b and low $6s/b against February ICE Brent, DES China's Zhoushan, according to market sources.

Considering that February ICE Brent traded at $70.18/b at 5 pm SGT Sept. 10, the AWB price would be around $64.18/b.

Platts assessed front-month Basrah Heavy crude, a similar sour heavy grade from Iraq, at $68.92/b on an FOB basis Sept. 10, Commodity Insights data showed.

Volume surge

As a result, crude inflow from the west coast of Canada to Asia surged to 240,000 b/d in July, with China taking 75% of the volume while the remaining went to India, according to Kpler shipping data. The previous high of 57,000 b/d was in June 2020.

The private Rongsheng Petrochemical led the Chinese buyers, followed by state-run PetroChina, Sinopec, CNOOC and Sinochem, data collected by Commodity Insights showed.

The volume to Asia was expected to hit a new high of 277,000 b/d in September, as South Korean refineries and Chinese-invested Hengyi Petrochemical in Brunei joined the bandwagon.

A new trend in Alberta's producers to seek a new market with TMX startup has been a growing demand for their heavy barrels in Asia,

"Asian refiners continue to test WCS and AWB barrels and there is a significant interest coming out of China, Taiwan and partially Japan. As long as the heavy/light differentials are in that $9/b range, there will be a growing Asia pull," said Greg Stringham, former vice president for markets with the Canadian Association of Petroleum Producers Sept. 5.

Commodity Insights expects Canadian crude export supply to rise to 5 million b/d by end-2025 from 4.3 million b/d in April 2024.

Canadian production is rising and multiple producers are adding new capacity through bite-sized, brownfield expansions each of 30,000 b/d to 45,000 b/d of heavy oil, Stringham said previously.