Canadian crude-by-rail shipments continue to slow in the first quarter
Crude oil shipments by rail declined sharply in the first quarter of 2015, reflecting a significant change in Canada's energy infrastructure picture. The average for the first 3 months of this year was down just less than 120,000 barrels per day, a 25% drop from the previous quarter and a 30% decline from the highs of last year.
More than half of Alberta's crude exports by rail are shipped to US East Coast refineries, and about one-third to the US Gulf Coast. The average cost for crude-by-rail shipment is about $15-20 per barrel, versus less than $9 per barrel for pipeline transport. Since the Heavy Oil Differential is now below $8 per barrel (the difference between Gulf Coast crude and Canadian heavy crude), Gulf Coast refineries having been cutting back on Canadian shipments by rail.
A big driver for the decline in rail transport is the loosening of pipeline bottlenecks due to new infrastructure recently built around the Cushing, OK oil storage hub. Lower light oil production in North Dakota and declines in Canadian conventional oil production have also helped free up space in the pipelines, taking the shine off crude-by-rail shipment.
Although Canada is expected to see a small drop in oil production for the first few months of 2015, that number is expected to resume its uptrend later in the year when several large oil sands projects come online. The US is also starting to see a turnaround in oil production, as the warmer spring weather and higher crude prices are expected to put some idled oil rigs back into service.
After hitting a peak export volume of 3.07 million in January, Canadian crude exports have decline slightly to 2.89 million barrels per day in March, reflecting the short-term dip in heavy oil production. About 2 million barrels per day are destined for US Midwest refineries, which are landlocked and import almost 100% of their crude oil from Canada. Light sweet crude imports to the US Gulf Coast were reduced to virtually zero by the end of 2014. The US exported 491,000 barrels per day of crude oil to Canada, almost exclusively to refineries in Quebec, Ontario and the East Coast.