According to people familiar with the situation, an impending labor dispute at Canada’s two main railroads is unlikely to significantly reduce oil exports to the United States due to excess capacity on Trans Mountain and other pipelines.
Nutrien, a fertilizer supplier, and C.H., a logistics company in the United States, are examples of North American shippers. Robinson (CHRW.O), are preparing for simultaneous stops at the Canadian operations of Canadian National Railway, or CN (CNR.TO), and Canadian Pacific Kansas City, or CP.TO, (CPKC), which could cost the nation’s economy billions of dollars.
Last week, CN announced that it would begin enforcing an embargo on any new reservations for the movement of hazardous materials, security-sensitive cargoes, or refrige The CPKC stated that it had begun to stop any new shipments of dangerous goods or chemicals. On Thursday, a strike or lockout could begin.
However, oil exports may be relatively unaffected. In May, U.S. rail imports of Canadian crude decreased significantly, averaging around 55,000 barrels per day. According to data from the Energy Information Administration, this was the lowest level since the pandemic price crash in 2020. Canada supplies the United States with approximately 4.2 million barrels per day, most of which are imported via pipeline.
Elliot Apland of MarbleRock Advisors, which helps negotiate rail supply-chain contracts, stated, “Anybody receiving crude by rail right now is figuring out what alternatives they have, whether it’s an alternative grade that can be substituted on the pipeline, or if a buyer is willing to take something else.”
During export blockades, prices of Western Canadian Select crude typically drop. However, according to industry professionals and analysts, deep discounting should be limited by Trans Mountain’s May expansion and the available capacity on other pipes.
Jeremy Irwin, a senior oil markets analyst at the consultancy Energy Aspects, stated that “crude-by-rail is not as essential to the Canadian market as it was prior to the Trans Mountain expansion.” The expansion of Trans Mountain nearly tripled the flow of crude from Alberta, which is landlocked, to the Pacific coast, to 890,000 barrels per day.
Upkeep at U.S. Irwin added that Midwest refineries, which purchase and process Canadian crude, will also make room in the pipeline for more barrels. In Hardisty, Alberta, WCS for September delivery settled on Friday at $12.25 a barrel below U.S. According to the brokerage CalRock, West Texas intermediate crude will receive an average discount of $18.65 in 2023. The negligible discount suggests that the market is unconcerned about the movement of Canadian crude.
A spokesperson for producer Cenovus Energy (CVE.TO), stated, “We’re closely monitoring the situation and putting plans in place to mitigate any impacts if a strike or lockout were to occur.” Canada said that ConocoPhillips (COP.N) ships refined product on CPKC and other rail carriers, but that it is flexible enough to handle a prolonged strike. The production of its Surmont oil sands is unaffected, according to the business.
Canadian propane depends mostly on rail to arrive at homegrown and trade markets. Fuel and chemical manufacturing deliveries could be significantly impacted by any interruption. Energy Aspects’ Irwin mentioned that Ridley Island Propane Export Terminal in British Columbia has stocked up on propane. Irwin said that some businesses that use generators to generate electricity on job sites have been stockpiling diesel.
He added that a rail stoppage that lasts longer than two weeks could leave diesel at Alberta refineries. These refineries include the Strathcona refinery of Imperial Oil (IMO.TO), the Edmonton refinery of Suncor Energy (SU.TO), the Scotford Complex of Shell (SHEL.L), the Sturgeon refinery of North West Redwater, and the Lloydminster refinery of Cenovus.
The gasoline markets in Canada are typically localized, and production stays in the area. Pipelines connect refineries to many major gasoline markets, and trains and trucks also distribute gasoline in other areas. A senior industry executive, who requested anonymity, stated, “Everyone is trying to get the inventories to a point where they could free rail logistics for 14 days and still be OK.”
