Get ready for a six-fold jump in Canadian crude-by-rail shipments this year: IEA

Get ready for a six-fold jump in Canadian crude-by-rail shipments this year: IEA

By Deborah Jaremko

March 7, 2017, 7:49 a.m.


oil by rail

Image: Joey Podlubny/JWN

More oil is going to find its way onto the rails in Canada this year as the country is left without enough pipeline capacity for continued production growth until at least 2019, the International Energy Agency (IEA) said on Monday.

By 2022 Canadian oil production is expected to grow by 820,000 bbls/d to 5.3 million bbls/d, the IEA said in its new five-year oil market outlook.

The net increase is driven entirely by oilsands growth despite new offshore volumes as conventional oil production declines.

“As Canadian oil output continues to grow, producers are looking ahead to an urgently needed expansion of the export network,” the IEA said.

“When pipeline capacity has not been available or domestic needs have fallen, rail shipments offer a vital relief valve. That is sure to be the case again. As no new pipeline capacity will be added before 2019, crude exports by rail could jump from 80,000 bbls/d in 2016 to 520,000 bbls/d in 2017 before falling back to 430,000 bbls/d in 2018.”

The IEA projects this will drop again to an average 105,000 bbls/d over 2019-22 as supply growth eases and as additional pipeline capacity comes online.

“According to the National Energy Board, total crude oil rail loading capacity in Western Canada is 1 million bbls/d, well above crude-by-rail needs in 2017 and 2018.”

The export bottleneck is expected to have a significant impact on prices, the IEA says, as the differential between Western Canadian Select and West Texas Intermediate typically reflects the cost to move crude from origin to destination as well as the difference in its quality.

When rail shipments rose between 2011 to 2014, the price differential between WTI/WCS widened to around US$20/bbl on average, reaching as much as US$39/bbl in December 2013. The discount then fell to US$13-14/bbl in 2015 and 2016 as oil prices fell, the IEA notes, which was barely enough to cover rail costs.

“With rail shipments set to rise, producers in Alberta will have to offer a discount to WTI and other crudes such as Mexican Maya, which can be shipped to the US Gulf Coast for a few dollars a barrel.”

The IEA expects the differential to drop after 2020, provided that new pipeline infrastructure is built, but “the reliance on US markets and associated transport costs may maintain the pressure on Canadian crude prices. As such, a diversification of export outlets and spare transport capacity is desirable. Otherwise, Canada might face restricted access to markets where the highest growth in crude oil demand is concentrated – namely Asia.”




About prosperitysaskatchewan

Consultant on Saskatchewan's natural resources.

Posted on March 7, 2017, in economic impact, oil, political. Bookmark the permalink. Leave a comment.

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