Canada's Oil Delivery Options Evolving

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Written by Daniel Graeber for Industrial Info Resources (Sugar Land, Texas)--Canadian deliveries of crude oil by rail are at historic lows, though the nation is on the cusp of breaking a landlock that leaves much of its volume isolated to North America.

While its production levels are not as high as many of its peers, Canada has the world's fourth-largest proved oil reserves, with 168 billion barrels found mostly in its oil sands. Only Iran, Saudi Arabia and Venezuela boast larger volumes of proved reserves.

Canada is largely landlocked in terms of exports, relying heavily on the U.S. market as its top customer. In terms of delivery, Canada's energy regulator reported the total volume of crude oil sent over various rail networks averaged 119,000 barrels per day (BBL/d) of oil in 2023, with November marking the high point at 167,000 BBL/d.

Those volumes mark something of a decline. In 2019, before the outbreak of the COVID-19 pandemic, volumes averaged 280,270 BBL/d by rail and settled at 143,000 BBL/d in 2023.

The entire regional energy sector was affected by a 2013 rail disaster in Quebec. More than 40 people died due to the derailment of a train carrying crude oil through Lac-Megantic.

Late 2023 volumes, meanwhile, were supported by an uptick in oil production in Alberta, which reached an all-time high last year at 3.73 million BBL/d. Further rail deliveries early this year could be impacted by the closure of a section of a pipeline in the Winnipeg region.

Imperial Oil Limited (Calgary, Alberta) announced mid-March that it was looking for alternative delivery options after a section was closed for preventative maintenance. The Winnipeg pipeline carries gasoline, diesel and jet fuel.

Of those, gasoline and diesel would be sent by rail during repair work, which should last about three months. Canada's energy sector could be impacted further by the long-awaited start of the expanded Trans Mountain crude oil pipeline to British Columbia.

The pipeline operator said last week it was filling up the expansion in stepwise fashion. Plagued by construction issues, environmental concerns and various other setbacks, the government-owned $25 billion project triples the original capacity to 890,000 BBL/d.

That means Canada will end years of North American isolation in the coming weeks by tacitly tapping the booming Asian economies. As of now, the U.S. is, by far, the largest export destination for Canadian crude oil.

For the week ending March 15, U.S. federal data show Canada sent an average 3.7 million BBL/d over the border, about 2.5% higher than the five-year average for this time of year. Coming in a distant second was Mexico, with an average of 353,000 BBL/d over the same week.

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