The big news yesterday was that crude oil is now flowing through the Trans Mountain expansion (TMX) pipeline from Alberta to tidewater on the B.C. coast.

The additional 590,000 barrels per day of capacity will boost the volume of Canada’s international exports. It will also result in higher prices for Canadian heavy crude (relative to the North American light benchmark - West Texas Intermediate), raising national income. The added egress should also reduce the volatility of the light-heavy differential, as the extra capacity mitigates against minor disruptions. The improved pricing is not just for the additional barrels flowing through the pipeline, but all heavy barrels produced.

For example, a study by IHS Markit (now S&P Global) conservatively estimates that insufficient export capacity for Canadian heavy crude resulted in $14 billion (US dollars) in lost value for the country between 2015 to 2019.

In the lead up to TMX’s in service, oil production has been rising. Data released yesterday by the Alberta Energy Regulator show that Alberta oil production in March was 4.0 million barrels per day - up 4.8% from the same month last year.  First quarter production this year was 3.9 million barrels per day - a record for that quarter.

The expanded pipeline gives more room for Canada’s single largest export to grow. Crude oil and bitumen represented 18% of Canada’s merchandise exports last year, or $137 billion. Higher oil exports largely feed through the productivity channel, with past investments in the oil sands now translating into major output gains.

Oil exports will be a major driver of Alberta’s economic growth this year. They will also add to Canada’s growth. The Bank of Canada estimates that the TMX will add a quarter of a percentage point to Canada’s real GDP growth in the second quarter.

It’s important to distinguish between volumes and values. While the volume of oil production is increasing, Alberta energy export values (released today) were still below 2023 levels in the first quarter (-3.5%). A big part of this is natural gas prices - which have plummeted from year-ago levels. We see energy export values shifting higher for the rest of the year alongside volumes.

All told, TMX commencement is a major milestone for the country, boosting exports and prices at a time when Canada’s economic growth and productivity have struggled.

Answer to the previous trivia question: The population of the United Kingdom was 67.6 million as of mid-2022.

Today’s trivia question: Why was the Stanley Cup not awarded in 2005?