Page 10 - NorthAmOil Week 25

NorthAmOil COMMENTARY NorthAmOil

The picture is
particularly bleak for
crude-by-rail shipments.

The oil industry “achieved the dream of going around 210,000 bpd. In April, Imperial’s rail
long pipeline in Western Canada but for all the volumes dropped to around 10,000 bpd – or less
wrong reasons”, IHS Markit’s director of North than 5% of the facility’s capacity – according to
American crude oil markets, Kevin Birn, was the company’s first-quarter earnings call.
quoted by Bloomberg as saying.
Birn went on to suggest that Canadian pro- What next?
ducers may now be in a hurry to bring curtailed Natural gas shipments to the US can be expected
production back online until they have more to respond to how the differential between
certainty that a recovery is underway. Thus spare Alberta’s AECO hub and Henry Hub behaves,
takeaway capacity could turn out to be more as well as being affected by the overall demand
than just a short-lived phenomenon. picture. The US Energy Information Adminis-
tration (EIA) projects that gross imports of pipe-
Train in vain line gas into the US – more than 99% of which
The drop in demand, production and shipments come from Canada – will slip from 7.4bn cubic
is also having a significant impact on crude- feet (210mn cubic metres) per day in 2019 to 7.0
by-rail transport out of the oil sands. Accord- bcf (198 mcm) per day in 2020. If the forecast for
ing to the Canada Energy Regulator (CER), in this year plays out, it would be the lowest level of
April crude-by-rail exports fell by 55% to about annual US pipeline gas imports since the mid-
156,000 bpd, down from roughly 351,000 bpd in 1990s. However, the EIA then projects that pipe-
March. The CER has not yet released statistics for line gas imports will grow to 7.9 bcf (224 mcm) The start dates
May, but energy data firm Genscape estimates per day in 2021.
that crude-by-rail shipments plunged to 49,000 The recovery in Canadian oil shipments – the for the new
bpd last month. majority of which also go to the US – is antici- pipelines are still
This is particularly painful for those pro- pated to be slower, though. The picture is par-
ducers that had invested significantly in ticularly bleak for crude-by-rail shipments, given uncertain, given
ramping up their crude-by-rail shipments in that transporting oil by rail is typically more
the absence of new pipeline capacity recently. expensive than shipping it via pipeline, and the the remaining
Among these is Cenovus Energy, which signed industry is seeking to cut costs where possible.
three-year deals in 2018 to transport 100,000 Given that rail shipments tend to rise when pipe- regulatory
bpd. According to the company’s first-quarter line capacity is lacking, and the expectation that hurdles that need
earnings call, the crude-by-rail programme – underutilisation of pipelines will linger, the use
which has been suspended since March – costs of rail for shipping oil sands crude could remain to be overcome.
around CAD18mn($13mn) per year, including considerably reduced for some time.
for storage of unused rail tankers. Cenovus also Unless oil prices rise dramatically – which
owns the Bruderheim rail-loading facility near is considered highly unlikely – a breakthrough
Edmonton. would be required in the oil sands to reduce
And Imperial Oil – ExxonMobil’s Cana- costs enough to spur significant new production
dian subsidiary – participates in a joint venture in this environment. In the absence of such a
involving a CAD170mn ($125mn) rail terminal breakthrough, both production and shipments
next to its Strathcona refinery in Edmonton. of output look set to remain depressed for the
The facility has the capacity to load trains with near – and perhaps medium – term.™

P10 www. NEWSBASE .com Week 25 25•June•2020