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IEA says crude by rail shipments to more than double to 390,000 barrels a day

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CALGARY, A.B. – Crude-by-rail shipments could more than double over the next two years from historic highs as a lack of pipeline capacity forces producers to look to alternatives, said the International Energy Agency Monday.

The Paris-based IEA forecasts in its latest oil markets report that crude-by-rail exports will grow from 150,000 barrels a day in late 2017 to 250,000 barrels a day this year and then to 390,000 barrels a day in 2019.

“Crude by rail exports are likely to enjoy a renaissance,” said the IEA, as at the end of 2017 oil available for export was 310,000 barrels a day higher than the takeaway pipeline capacity.

With oilsands production expected to keep growing, crude-by-rail shipments could peak as high as 590,000 barrels a day in 2019 if producers don’t resort to crude storage in peak months, the IEA said.

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The shipments are significantly higher than the current record of 179,000 barrels a day reached in September 2014 before oil prices collapsed.

The increase in shipments comes after an increase in railway incidents in 2017, including a 21 percent jump in accidents from a year earlier and the number of dangerous goods leaks increasing from two to five.

The IEA says rail shipments are expected to return to around the 170,000-barrel-a-day level in 2020 assuming Enbridge Inc. replaces its Line 3 pipeline and adds capacity elsewhere on its Mainline pipeline system.

The Line 3 replacement, however, faces significant opposition in Minnesota and the company isn’t expected to hear on its environmental approval in the state until this summer.

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The export market will also still be constrained even with Enbridge’s expected 450,000 barrels a day of expansion, but the IEA raised doubts that the capacity additions from Kinder Morgan’s Trans Mountain and TransCanada’s Keystone XL pipeline projects will
actually, get built.

“We must acknowledge the substantial risks that those upgrades will be delayed or even cancelled, possibly due to legal action.”

The agency said the pipeline constraints have increased the forward discount for Canadian production, adding US$3.75 a barrel in 2018 and US$2 a barrel in 2019 to the forward differential curve between Western Canadian Select and WTI since its last report a year
ago.

The lack of export space has helped contribute to the sell-off of oilsands assets from Shell, ConocoPhillips and Marathon Oil and the lack of new development approvals, said the IEA.

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“While industry consolidation and capital discipline play a part, delays to pipeline approvals and uncertainty over the provision of more export capacity is undermining the next wave of
development as market access costs are set to rise.”

(THE CANADIAN PRESS)

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