The energy industry is planning major expansions to pipeline capacity over the next few years to help transport growing production of crude oil from western Canada to markets in the United States and Asia. (For more on oil, check out Peak Oil: What To Do When The Wells Run Dry.)

TUTORIAL: Commodities

Canadian Production Growth
A recent report from the Canadian Association of Petroleum Producers (CAPP) estimates that crude oil production from Canada will increase from 2.8 million barrels per day to 4.7 million barrels per day by 2025.

As significatn majority, 89%, of current oil production comes from areas in the Western Canadian Sedimentary Basin and this percentage will increase by 2025 as most of the production growth from Canada over the next 15 years will come from various oil sands deposits in western Canada.

Pipeline Capacity
Canada consumed 828,000 barrels of oil per day in 2010, or 31% of its total production, with the balance exported to the United States and other markets. Since Canadian oil production is expected to grow faster than Canadian demand over the next decade, the industry has been adding pipeline capacity to the region to facilitate exports. (For more on how this can affect oil prices, please read What Determines Oil Prices?)

The most recent pipeline to come on line was phase two of the Keystone Pipeline system operated by TransCanada Corporation (NYSE:TRP). The expansion connected Steele City, Nebraska to Cushing, Oklahoma and increased the capacity of the Keystone Pipeline system to 591,000 barrels per day.

The next planned expansion of the Keystone Pipeline system is the Keystone XL project, which will bring crude oil from Western Canada to the Gulf Coast of the United States.

Enbridge (NYSE:ENB) is working on the Northern Gateway Pipelines Project, which will run 731 miles from Alberta to the western Coast of Canada in British Columbia. The oil will then be loaded onto tankers and transported to markets in Asia and the PADD V region of the United States, which includes California, Oregon, Washington and other western states.

The Northern Gateway Pipelines Project will have capacity of 525,000 barrels per day but has not yet received approval from the authorities in Canada. (For more on the industry, see The Industry Handbook: The Oil Services Industry.)

Kinder Morgan (NYSE:KMI) also has several pipeline expansions planned for western Canada, where the company currently operates the Trans Mountain pipeline. The Trans Mountain pipeline currently runs from Edmonton to British Columbia and has capacity of 300,000 barrels per day.

The company has various expansions planned that will add several hundred thousand barrels per day of capacity to its network. These additional will bring additional crude oil from western Canada to markets in Asia and the west coast of the United States. Another transport option for oil producers is the use of the railroad to deliver crude oil to end markets. Canadian Pacific Railway (NYSE:CP) is investing $100 million from 2010 to 2012 to increase capacity in North Dakota and will transport crude oil produced from the Bakken formation to end markets. Canadian National Railway (NYSE:CNI) is also making similar investments in its service area.

Bottom Line
The expected growth in oil production from Canada will necessitate the construction of large amounts of pipeline capacity to transport the crude oil to markets in Asia and the United States. Many of these expansions are underway with more planned in the future. (For more tips in investing in oil, check out A Guide To Investing In Oil Markets.)

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Tickers in this Article: TRP, ENB, KMI, CNI, CP

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