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Canada crude-by-rail loadings highest since Quebec disaster
The rebound in shipments comes amid growing expectations that Canada is on the brink of a surge in crude-by-rail exports. Shipments had fallen by nearly 90,000 barrels per day (bpd) in the weeks after July 6, when a train carrying North Dakota crude derailed and exploded in the center of the small town of Lac-Megantic, killing 47 people.
Weekly figures from the Association of American Railroads, which do not distinguish between shipments of refined fuels and those of crude oil, show 6,513 carloads of petroleum were loaded in Canada in the week ended Sept. 14, a 4.1 percent increase from the same week in 2012.
That is roughly equivalent to about 558,257 barrels per day (bpd), about 50 percent more than in 2010, before a shortage of pipeline capacity for crude from burgeoning shale plays such as North Dakota’s Bakken triggered a broad surge in rail shipments.
The growth has been far more pronounced in the United States, with crude shipments by rail rising from next to nothing four years ago to 861,000 bpd in the second quarter.
While Canadian loadings fell from around 6,500 carloads to a 2013 low of 5,500 carloads in the weeks following the Lac-Megantic crash, several industry players said the main reason for that would have been narrower price differentials that made it less profitable to ship crude by rail to the United States.
Western Canadian Select heavy blend traded between $10 to $20 per barrel below the West Texas Intermediate benchmark for much of the summer, diminishing the arbitrage economics.
However, WCS has weakened in recent weeks to last trade around $27 per barrel below WTI, reopening the window.
IHS Cera analyst Jackie Forrest said many industry players also look at the differential between Canadian heavy crude and Mexican heavy Maya crude to determine whether it is economic to ship crude from the Alberta oil sands to the U.S. Gulf Coast by rail.
The spread between Maya and WCS narrowed to around $7 per barrel in July, according to Reuters calculations, before widening out to last trade around $20 per barrel.
Industry players have said it costs $17 to $21 dollars per barrel to ship crude from Alberta to the Gulf Coast on a manifest train hauling mixed cargo.
“The movements did flatten off in Q2 of 2013 and part of that was to do with differentials not being wide enough to support the growth in rail movements,” Forrest said.
“Our view is that rail will grow this year. It’s because we are at a point where we do not have excess capacity in the pipeline system so all incremental growth will go by rail.”
Although Canada has lagged the United States in using its rail system to haul crude oil, around 550,000 bpd of new crude-by-rail terminals are due to be operational by the end of 2014 as producers seek alternatives to congested export pipelines. (Reuters)
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