Why shipping crude oil by rail is costing Canada too much?

We all know it well, our current government has turned their focus away from pipelines, and now it seems they will try to restrict crude oil shipments by rail as well. When will it stop… Everyone knows we need to bring our resources to international waters, that subject has been beaten to death in the past. There are a select number of ways to ship crude, that is, through existing pipelines, which are getting older as the day's progress, and by truck and/or railcar, the railcar being the more cost effective than trucking.

Let's look at some facts to better understand a few cost impacts. Canada is the fourth largest producer of crude oil and the fourth largest exporter in the world. 99 percent of Canada's crude oil exports go to the United States. 98 percent of Canada's proven oil reserves are in the oil sands. Green House Gas (GHG) emissions per barrel of oil produced in the oil sands has fallen 29 percent since the year 2000. In 2017, Canada had the capacity to produce 2.7 million barrels per day however, this number has increased since then.

Transporting crude oil through pipelines is the preferred method of oil producers. With 840,000 Km of pipelines across Canada, that carry approximately 3.9 million barrels per day it is not difficult to understand demand is increasing. It makes sense that additional pipelines are needed to replace older ones, not to mention building new pipelines to transport additional barrels of crude. But, when pipelines are at capacity, railcars are employed to take up the slack. For instance, in 2017, there was an 18 percent increase in the volume of rail shipments, that averaged out to 131 million barrels per day.

When our governments restrict additional pipelines, and propose additional restrictions to limit the amount of crude oil being shipped by rail, it puts a further strain on getting Canada's oil to markets. Please remember, 99 percent of which travels into the United States. At discounted prices, since West Canada Select (WCS) sells for around $30.75 per barrel while West Texas Intermediate (WTI), which is the preferred U.S. brand, sells for $75.69 per barrel. The subject of getting our resources into international markets cannot be stated enough. We need our oil to ship directly to foreign buyers.

How will Canadian oil producers maintain current shipments to meet demand? It will be harder if new restrictions are enforced on railways. Where will oil producers store surplus product if they cannot move crude to potential buyers? How long will Canadian producers bite their tongue when they continue to get lower sales volumes compared to others? These questions can only be answered when our governments start to support getting our products to new markets, while supporting building additional pipelines and allowing railways to move our products.