Crude-by-rail shipments expected to fall after setting record high in January

CALGARY — Canadian crude-by-rail exports hit a record high in January but observers say they’ve likely fallen since then and stand to plummet even further as low oil prices force producers to cut growth spending and shut in high-cost wells.

“Obviously, if there’s nothing being produced, there’s nothing to move to market,” noted John Zahary, CEO of Calgary-based Altex Energy Ltd., which is currently moving about 50,000 barrels per day of oil mainly through its Lashburn, Sask., rail terminal.

Crude-by-rail exports reached a high of 403,767 barrels per day in January, the first time they’ve surpassed 400,000 bpd, the Canada Energy Regulator said Friday.

That beats by 10.6 per cent the previous record of 364,893 bpd set in December 2018, and is well ahead of 347,000 bpd in December 2019.

The federal agency formerly known as the National Energy Board attributed the increase to two things: An Alberta government program introduced last fall to ease oil production limits for producers who add rail capacity, and a wide difference in Canadian and U.S. oil prices that supported the higher cost of rail shipping versus pipelines.

Earlier this week, U.S. benchmark West Texas Intermediate crude prices tumbled to US$20.83 per barrel, their lowest level since at least 2003, before bouncing back to about US$25 — about half of the price a month ago.

Western Canadian Select bitumen-blend oil prices have followed.

Global oil prices are being hit by fears of falling demand due to the COVID-19 outbreak at the same time that the market is flooded with barrels of cheap oil after Russia and Saudi Arabia failed to set new production limits.

The volatility has prompted steep capital budget cuts from many of Canada’s biggest oil companies and those cuts are likely to keep coming, along with voluntary production cuts, said analyst Phil Skolnick of Eight Capital.

Both measures free up pipeline room and reduce the need for rail transport.

“With WCS pricing falling down to where it is and the Saudis in a price war flooding the market, it just doesn’t make sense to keep throwing those incremental barrels out there,” he said in an interview.

Crude-by-rail shipments likely fell in February because of the blockades erected by supporters of the hereditary Wet’suwet’en chiefs opposing the Coastal GasLink project, noted Zahary.

He added the medium-term outlook for rail shipments, like the economic outlook for energy-dependent Alberta, seems bleak.

Oilsands producer Cenovus Energy Inc. reported in February that its crude-by-rail shipments jumped to 120,000 barrels per day in January from 106,000 in December.

But two weeks ago, Cenovus announced the suspension of its crude-by-rail program — while cutting its capital spending plan by 32 per cent and reducing its 2020 production forecast by 10,000 to 40,000 barrels of oil equivalent per day.

Calgary-based producer Imperial Oil Ltd. said in January it had increased crude-by-rail shipments to more than 100,000 bpd from zero in October.

The company co-owns a rail terminal in Edmonton with capacity to move 210,000 bpd, but cut its usage to zero or near zero at least three times in 2019 as price differentials tightened with Alberta production curtailments, storage levels and rail and pipeline disruptions.

The company would not comment on Friday when asked what its current crude-by-rail shipments and plans are.

On Friday, oilsands producer Athabasca Oil Corp. became the latest company to cut its capital spending plans, announcing a $30-million reduction along with a plan to curtail about 4,000 bpd of production at its Hangingstone thermal oilsands project.

On Wednesday, Baytex Energy Corp. announced it would stop about 3,500 bpd of low- or negative-margin heavy oil production and reduced its 2020 production forecast by 8,000 barrels of oil equivalent per day.

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