2017 could bring a big rebound for Canadian crude by rail

2017 could bring a big rebound for Canadian crude by rail

By Deborah Jaremko

Jan. 18, 2017, 7:42 a.m.



Get ready for a revival in crude-by-rail in Canada as increasing production volumes run up against pipeline bottlenecks, says GMP FirstEnergy director of institutional research Martin King.

Canada’s oil producers started to feel pipeline constraints late in 2016—a pain that is not expected to be resolved until late this decade, King told a market update breakfast on Tuesday.

“Approval of Enbridge Line 3 and [the] Trans Mountain expansion are helpful, but we assume progress will be slow against environmental and provincial pushback, [with] completion by mid to late 2017,” King said.

“Expect differentials to see some additional pressure as more pipe constraints begin to surface.”

Canadian crude-by-rail shipments peaked in 2014 at about 400,000 bbls/d, but dropped to as low as 150,000 bbls/d before climbing back to about 300,000 bbls/d near the end of last year, according to GMP FirstEnergy.

“The WCSB has oil railing capacity near one million bbls/d, with most of it sitting idle; availability of rail cars is currently not a problem,” King said.

“We expect that with price differential pressures and pipe availability becoming tight, that growing supplies will see more rail movement.”

King added there is potential for activity to return to or even exceed the 2014 highs as market dynamics play out.

“The availability of plentiful rail transportation capacity allows for an upper limit to be set on the price differential by the cost of moving oil to market by rail,” King said, adding that upper limit is likely around $15/bbl.

“Differentials could widen by more than our forecast temporarily, but greater railing will clear the backlog and tighten the spreads.”

GMP FirstEnergy is expecting WTI to average US$58/bbl in 2017.




About prosperitysaskatchewan

Consultant on Saskatchewan's natural resources.

Posted on January 18, 2017, in economic impact, oil, political. Bookmark the permalink. Leave a comment.

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