Oil pipeline potential to spare Canadian exports from looming rail dispute By Reuters

By Arathy Somasekhar

HOUSTON (Reuters) – A looming labor dispute at Canada’s two main railways is unlikely to significantly reduce oil exports to the United States because of excess capacity on Trans Mountain and other pipelines, people said close to the subject.

North American shippers, such as the fertilizer supplier Nutrient (NYSE: ) and US logistics firm CH Robinson are preparing for simultaneous shutdowns at the Canadian operations of Canadian National Railway (TSX: ) and Canadian Pacific (NYSE: ) Kansas City ( CPKC ), which could cost the nation’s economy billions of dollars.

A strike or lockout could begin on Thursday.

But oil exports may be largely unscathed. U.S. rail imports of Canadian crude have fallen sharply in recent years, averaging about 55,000 barrels a day in May, U.S. Energy Information Administration data showed, the lowest since the price pandemic collapsed in 2020. The U.S. imports about 4.2 million barrels per day from Canada, mainly. through the pipe.

“Anyone getting crude oil by rail right now is figuring out what alternatives they have, whether it’s an alternative grade that can be replaced on the pipeline or whether a buyer is willing to take something else,” said Elliot Apland of MarbleRock Advisors, which helps negotiates railway supply contracts.

Canada’s Western Canadian Select crude oil prices typically fall during export shutdowns. However, Trans Mountain’s expansion in May and available capacity for other pipelines should limit deep cuts, industry experts and analysts said.

“Crude by rail is not as critical to the Canadian market as it was before the Trans Mountain expansion,” said Jeremy Irwin, senior oil markets analyst at consultancy Energy Aspects.

The Trans Mountain expansion nearly tripled the flow of crude from landlocked Alberta to the Pacific coast to 890,000 bpd.

Maintenance at U.S. Midwest refiners, which buy and process Canadian crude, will also free up pipeline space for additional barrels, Irwin added.

WCS for September delivery in Hardisty, Alberta settled on Friday at $12.25 a barrel below U.S. West Texas Intermediate crude, according to brokerage CalRock, compared with an average discount of $18.65 in 2023. The relatively small discount indicates little market concern about moving Canadian crude.

“We are closely monitoring the situation and are putting plans in place to mitigate any impact should a strike or lockout occur,” said a spokesman for producer Cenovus Energy (NYSE: ).

ConocoPhillips (NYSE: ) Canada said it is shipping refined products on CPKC and other rail carriers but has flexibility to handle a sustained strike. The company does not expect any impact on its Surmont oil sands production.

DISCOUNTED PRODUCTS

Canadian propane relies primarily on rail to reach domestic and export markets. Any shutdown could significantly reduce supplies for fuel and chemical production.

AltaGas (TSX:)’ Ridley Island Propane Export Terminal in British Columbia has been supplied with propane, Energy Aspects’ Irwin noted.

Some companies that use generators for power on job sites have stockpiled diesel, Irwin said, adding that a rail shutdown of more than two weeks could block some diesel at Alberta refineries.

These refineries include Imperial Oil’s (NYSE: ) Strathcona, Suncor Energy’s (NYSE: ) Edmonton, Shell’s (LON: ) Scotford Complex, North West Redwater’s Sturgeon refinery and Cenovus’ Lloydminster refinery.

Canadian gasoline markets tend to be localized, with production remaining regional. Many major gasoline markets are directly connected to refineries by pipelines, while railroads and trucks also distribute gasoline to other regions.

“Everyone is trying to get inventories to a point where they can clear rail logistics for 14 days and still be OK,” said a senior industry executive who declined to be identified.