Executive Briefings

As Battles Over Pipelines Continue, Rail Moves Great Volumes of Canadian Oil

Canada's oil patch is quietly sending large new volumes of oil on rail cars, even as it fights to overcome mounting opposition to plans for new pipelines to the U.S. Gulf Coast and Canada's West Coast.

Though solid numbers are not available, industry sources say upward of 80,000 barrels a day of Canadian oil is now moving to market on rail cars. It's a small fraction of the 2.3 million barrels a day the country exports, overwhelmingly by pipeline. But rail is rising fast: last year at this time, some 5,000 barrels a day left Alberta on trains. By next year, executives, oil producers and energy traders estimate it will exceed 200,000 barrels a day.

The rise of rail comes as the industry scrambles to gain better prices for Canadian oil, which has suffered deep discounts because of overstuffed pipelines and over-supplied U.S. Midwest markets. A new pipeline takes years to build, but with rail, an oil company can send product to new markets in days with portable train-loading equipment. The new destinations that companies are now accessing - the Gulf Coast, U.S. Northeast, California and Central and Eastern Canada - offer better prices that are directly boosting profits in Alberta.

But the speed of industry's embrace of rail, which is set to move as much next year as a mid-sized pipeline, also suggests a much broader shift is under way. As more oil moves on trains, it stands to supplant the need for new pipelines, whose construction has grown increasingly difficult.

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Though solid numbers are not available, industry sources say upward of 80,000 barrels a day of Canadian oil is now moving to market on rail cars. It's a small fraction of the 2.3 million barrels a day the country exports, overwhelmingly by pipeline. But rail is rising fast: last year at this time, some 5,000 barrels a day left Alberta on trains. By next year, executives, oil producers and energy traders estimate it will exceed 200,000 barrels a day.

The rise of rail comes as the industry scrambles to gain better prices for Canadian oil, which has suffered deep discounts because of overstuffed pipelines and over-supplied U.S. Midwest markets. A new pipeline takes years to build, but with rail, an oil company can send product to new markets in days with portable train-loading equipment. The new destinations that companies are now accessing - the Gulf Coast, U.S. Northeast, California and Central and Eastern Canada - offer better prices that are directly boosting profits in Alberta.

But the speed of industry's embrace of rail, which is set to move as much next year as a mid-sized pipeline, also suggests a much broader shift is under way. As more oil moves on trains, it stands to supplant the need for new pipelines, whose construction has grown increasingly difficult.

Read Full Article