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Canada's Trans Mountain pipeline expansion to start in April

FILE PHOTO: A pipe yard servicing government-owned oil pipeline operator Trans Mountain is seen in Kamloops

By Arathy Somasekhar and Georgina McCartney

HOUSTON (Reuters) -Canada's Trans Mountain Corp will begin adding crude oil to its long-delayed pipeline expansion in February and expects it to start operating in the second quarter, an executive said on Wednesday.

The C$30.9-billion ($23.05 billion) expansion project will nearly triple the flow of crude from Alberta to Canada's Pacific Coast to 890,000 barrels per day, but has been plagued by years of delays and cost overruns.

The start-up is expected in early April and will ramp up to full capacity by the end of the year, Jason Balasch, a senior director at Trans Mountain, said at the Argus Crude Summit in Houston.

The main challenge remaining for the expansion project is the installation of a section of pipeline through a mountain in British Columbia, which the company expects to complete early next week.

Canadian heavy oil prices strengthened on the news, one trader said, with the discount on Western Canada Select heavy blend crude for March delivery tightening 50 cents to $17.50 per barrel below U.S. benchmark futures.

Canadian oil producers will ramp up output in the next couple of years and fill the expanded capacity, executives at the conference said.

Oil production will rise and deep discounts on Canadian crude ease as the pipeline comes online, said Jerry Miller, a senior vice president at U.S. oil refiner HF Sinclair.

U.S. refiners Delek US Holdings and Phillips 66 said they expect higher Canadian volumes to the West Coast to reduce prices there, offsetting some of the impact from higher prices in the U.S. mid-continent, which will see less Canadian crude flows once TMX is online.

"TMX has multiple knock-on effects in our organization," said Will Monteleone, president of Par Pacific Holdings, which processes Canadian crude oil at its refinery in Washington state. It also buys competing crude oil from Alaska and Latin America for a refinery in Hawaii.

Flows of Canadian crude oil to the U.S. Gulf Coast have been consistent and will not change with the expansion, pipeline operators Energy Transfer and Enterprise Products said.

The federal government plans to sell Trans Mountain once the expansion is completed. Prime Minister Justin Trudeau's Liberal government bought the project in 2018 to ensure the expansion went ahead, but its costs have ballooned to more than four times the original budget as it struggled with years of regulatory delay and massive cost overruns.

(Reporting by Arathy Somasekhar and Georgina McCartney in Houston; additional reporting by Nia Williams in British ColumbiaEditing by Alistair Bell and Marguerita Choy)