Rail Deliveries Follow Canadian Oil Production Trends

---

Written by Daniel Graeber for Industrial Info Resources (Sugar Land, Texas)--Crude oil exports by rail are up more than 50% over the last six months, the Canadian government said as new pipeline capacity opens for foreign deliveries from the nation's west coast.

The Canada Energy Regulator said crude oil production in Alberta hit a record high in December at 4.53 million barrels per day (BBL/d). That, in turn, has strained existing pipeline capacity in the nation.

"High utilization indicates demand to use pipelines is also very high, and that spare capacity on export pipelines has become limited," the government said Wednesday.

As such, crude-by-rail exports have increased by 53% over the last six months.

North American regulations regarding rail deliveries were overhauled in 2013 after 47 people died in Lac-Megantic, Quebec, when a train carrying Bakken crude oil from North Dakota derailed and exploded.

Rail volumes at the time were on the rise in response to increased crude oil production in North America.

Canada ranks fourth in the world in terms of proved oil reserves, with 168 billion barrels of mostly oil sands. Only Iran, Saudi Arabia and Venezuela boast larger volumes of proved reserves.

The thick, viscous type of crude oil found in Alberta, known commonly oil sands, makes it a unique producer given the niche refinery slates preferred by oil importers. Much of the U.S. refining sector is geared toward heavier crudes, explaining why Canada is the top crude oil exporter to the United States.

Over the four-week period ending May 3, Canada sent an average of 3.6 million BBL/d to the U.S. market. Mexico, a distant second, delivered 456,000 BBL/d over the same period. Ecuador, which produces an oil similar to Canada's, sent only 63,000 BBL/d over the four-week period, though weekly volumes to May 3 were about double that.

Canada's export options, meanwhile, are evolving with the expansion of the Trans Mountain Pipeline. Once in full service, it will add 590,000 BBL/d in net export capacity and increase total pipeline export capacity by 13%, easing the bottlenecks on the existing networks.

"Major oil export pipelines from western Canada--Trans Mountain (existing system), Keystone, and the Enbridge Mainline--are running at, or near, 100% utilization," the government said.

There is concern the expansion of Trans Mountain could reduce the amount of oil available to existing midwestern carriers like Keystone, which deliver crude as far as the U.S. Gulf Coast. Diverting Ecuadoran crude there instead could make up for a loss in pipeline deliveries.

It took more than a decade for the expansion to come into service. Midstream-focused Kinder Morgan Incorporated (NYSE:KMI) (Houston, Texas) submitted its application for the overhaul in 2013, though the last weld was completed just last month.

The expansion started delivering oil to the Westridge Marine Terminal in the Port of Vancouver, British Columbia, on May 1. The government said crude oil shippers, from producers to refiners, have already contracted 80% of the additional volumes from Trans Mountain.

Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 200,000 current and future projects worth $17.8 Trillion (USD).