The critical role of the Canadian oil pipeline in world trade

Julia Swales, Senior Editor at Ti, interviewed Punit Oza, Founder of Maritime NXT and asked him “What problems will the Canadian oil pipeline solve and how will it be critical for Canada and world trade?” 

The centre of gravity in world trade is moving towards Asia. India and China have been quite clear that while they will try to adhere to the Paris Climate Accord, they will need some dispensation and additional time. The net zero targets of India and China are not in line with the American or the European targets. They are well into 2050-2060 which means that they will probably be the biggest importers of fossil fuel in the next 30-40 years, to fuel their growth & progress.

If that is needed, then this kind of infrastructure which connects Central Canada or Eastern Canada to the Western Canadian ports, which are much closer to Asia, is very critical for Canada. This infrastructure will also bypass the Panama Canal completely. Currently, tankers and bulkers are reluctant to pay the kind of auction fees for transits that the container ships are willing to pay, not to mention the huge delays in transiting the canal, which create greater uncertainty. The Canadians have been smart to eliminate that and say, let’s take the crude down to Vancouver, and simply supply their biggest markets in Asia in a most timely and secure manner.

Canada is also one of the largest suppliers to America through its own pipeline and now want to try and hedge their bets, as politically, they are concerned about Trump coming back. Trump’s attitude towards the erstwhile NAFTA and the current US-Mexico-Canada Free Trade Agreement has been a tough one for Canada.

Further, Canada has got commitments from all the major oil companies to use this particular pipeline. They will start sending part of their production into the pipeline, rerouting the cargoes into Asia, from West Coast Canada, instead of doing it from the Eastern Seaboard. Interestingly, while the usual suspects are there, that is the Canadian and the US oil companies, there are a few Asian companies too. An example being PetroChina Canada.

This inclusive model is being used by many countries, such as Saudi Arabia – who have divided the export regions and refineries and formed joint ventures and marketing arrangements, according to the countries which are key demand markets. They have a joint venture agreement on the Middle East Gulf side, transiting through Straits of Hormuz, with Total Energies, the French oil giant. Similarly, they have joint venture partnership with Sinopec, the Chinese oil major, in Yanbu, in the Red Sea coast, where all the problems are. Essentially, it’s a good model to have, if Canada can ensure a committed volume coming out from there.

There is one big issue though – the weather, which is getting worse due to global warming. The actual sea transit from Vancouver to Asia during the winter months is tough. We know that on the dry cargo side, that creates difficulties, because obviously cargo loading is open to elements and therefore, the efficiency really suffers. For the oil trade, this may not be a major concern as most of the operations are through hoses & pipelines.

This pipeline doesn’t solve all the problems, but it does provide a genuine alternative to the uncertain Panama Canal & a better access to Asian markets, which are becoming even more important for Canada, given that America will probably go through a political change in November.

Author: Julia Swales

Source: Ti Insight

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