West Coast traders and U.S. refiners are expressing concerns over the quality of crude oil shipped via the recently completed Trans Mountain Pipeline expansion (TMX). They warn that high vapor-pressure and acidity limitations could discourage purchases of Canadian heavy barrels.

The expansion, which cost $24.84 billion ($34 bln), began operations last month. It has almost tripled the shipping capacity of Canada's Pacific Coast.

It is anticipated that the roughly 2.5 million barrels per day U.S. West Coast refinery market will be a major outlet of Canadian heavy oil transported via Trans Mountain, but concerns over crude quality may dampen demand. This could have an impact on the price of oil or force more oil to be shipped via rival Canadian export pipelines that are subject to lower acidity and vapor pressure limits.

According to regulatory complaints, and three people who are familiar with the issue, several West Coast refiners raised concerns about the high sulfur content and acidity of the initial volumes, which could damage equipment and increase air pollution. However, the demand has not been affected.

Trans Mountain has historically had higher vapor-pressure limits than other export pipes because it ships refined products along with crude oil. The expanded line, which mainly carries heavy crude oil, carried the same limits.

Canadian Natural Resources Ltd., U.S. oil giant Chevron, and refiner Valero Energy are among the ten companies and associations that have complained to the Canada Energy Regulator about the high vapor pressure limit and asked to narrow the technical specifications of the pipeline.

Trans Mountain's current vapor pressure specifications and acidity standards were developed through a shipper-consultation process. They have been in effect since March 2023.

Trans Mountain told Reuters via email that it was aware of new shipper concerns prior to filing the complaint and was engaged in a consultation process which continues.

Valero's letter to CER from last month stated that vapor pressure limits are "wholly inappropriate" for West Coast refinery markets. Valero and other West Coast refining companies are expected to be the top buyers of TMX-barrels.

Chevron told the CER separately that the vapor pressure limit exceeded the regulatory limits set for storage tanks in both of its California refineries. Tanks leak more vapors when pressure is high.

Canadian Natural, an oil producer and major shipper of the Trans Mountain pipeline, said that the higher vapor limit could also mean more light oil with lower value can be blended in, reducing Trans Mountain crude's value.

Chevron stated that the TMX crudes were more acidic. This can cause corrosion and damage to processing equipment.

Refiners still are trying to understand the new paradigm. A West Coast crude trader stated that there is a lot of uncertainty, and people are using (operational models).

Limited Investment Appetite

The TMX crude has unusual properties that will not require refiners to invest in equipment modifications.

Robert Auers of RBN Energy, an analyst, noted that regulatory obstacles were a major obstacle to the investment needed to upgrade or add new units at refineries on the West Coast.

Trans Mountain announced in May that a review of technical specifications for the pipeline is under way. This prompted Canadian Natural to request the CER to put off the decision on the complaint by 45 days. The CER agreed last week, so there won't be a regulatory decision before July 8th.

Canadian heavy crudes also contain high levels of sulfur. This will put pressure on the existing capacity to remove sulfur and limit the number of barrels that can be imported by West Coast refining firms, according to Jeffrey McGee.

McGee pointed out that the West Coast's only refineries to take TMX heavy sour grades are those in the Los Angeles area. Washington, Hawaii and Alaska refineries, on the other hand, prefer lighter, sweeter crudes.

Costs TRUMP Concerns

However, the low price and proximity of Canadian barrels has so far trumped any quality concerns. Aqualeader delivered about 290 000 barrels of crude oil to Marathon Petroleum in Anacortes, Washington last month, making it the first TMX cargo that arrived on the West Coast.

Phillips 66, Ferndale, Washington and Chevron, El Segundo California, also received shipments recently.

These purchases will replace some South American crudes such as Ecuadorian Napo and Oriente, and Colombian Vasconia. Traders and analysts have noted that Iraqi Basrah may also be replaced because of their higher shipping costs.

The superior quality of California crude oil and Alaska North Slope Crude is expected to keep them on the West Coast refinery schedules.