​By the barrel: six oilsands producers outline crude by rail plans

Relief for Canada’s oilpatch is gradually rolling down the tracks, with producers aiming for big volumes of crude by rail to counter their worst glut ever.

A tally of plans from six producers including Cenovus Energy, Canadian Natural Resources and Imperial Oil Ltd. shows they’re looking to add about 270,000 bbls/d of exports on tank cars to potentially surpass 400,000 bbls/d by the middle of next year. Most of it is headed to the U.S. Gulf Coast.

It’s a costly solution at a time when a shortage of pipeline capacity sent the price for heavy western Canadian crude to a record low of about $13 a barrel this week.

The plans come after almost a year in which rail companies including Canadian National Railway Co. and Canadian Pacific Railway Ltd. demanded multi-year contracts to invest in locomotives and workers, while producers tried to tough it out as they await for conduits to get built.

Producers are giving in after being reluctant to commit to rail after court filings delayed two major pipeline projects that would relieve the glut: Trans Mountain’s expansion to Vancouver and the TransCanada Corp. Keystone XL that would ship crude to the U.S.

“Much of the industry was on the sidelines because they didn’t want to commit to the long-term contract,” Jihad Traya, manager of strategic energy advisory services for HSB Solomon Associates LLC in Calgary. “Now they are compelled to.”

About 350,000 bbls/d of crude by rail shipments may be needed to alleviate the supply overhang, Traya said.

Here’s a look at other crude by rail plans announced by major oilsands producers:

  • Imperial is seeking to secure agreements to run its 210,000-bbl/d rail terminal at as close to full capacity as possible. The company has agreements in place to to ship as much as 130,000 bbls/d in the current quarter by rail versus an average 80,000 bbls/d over the past six months, CEO Rich Kruger said Nov. 2.
  • Cenovus announced major three-year agreements with Canadian National and Canadian Pacific in September to ship 100,000 bbls/d by mid-2019 from two terminals in Alberta.
  • ConocoPhillips will transport about 38 percent of its Surmont oilsands production to the U.S. by rail in the fourth quarter, up from about 23 percent in the third quarter, CFO Donald Wallette said Oct. 25. Surmont produced about 150,000 bbls/d in September, according to the Daily Oil Bulletin.
  • MEG Energy Corp. will double its crude by rail volumes to 30,000 bbls/d by the end of the first quarter, CEO Derek Evans said Nov. 1.
  • Devon Energy Corp. is seeking rail contracts to move 20 percent of its heavy oil production, according to a Nov. 14 presentation. Output from its Jackfish oilsands site exceeded 115,000 bbls/d earlier this year.
  • Canadian Natural will begin transporting 10,000 bbls/d by rail this month after securing tank cars and locomotives through a third party, spokeswoman Julie Woo said in an email.

© 2018 Bloomberg L.P

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