Refineries in US East Coast have minimal pipeline access so bring in Western Canadian crude oil by rail
In March of 2018, Canadian oil volumes exported by rail reached a 3-year high of over 170,000 barrels per day (Mb/d). The differential between light and heavy crude oil benchmark prices also reached a 3 year high in March 2018, averaging $23 per barrel, according to the National Energy Board.
Crude-by-rail exports were more economic because the relatively high cost of rail transportation was offset by the lower cost paid for the Canadian oil by refiners in the United States (U.S.). Additionally, major crude oil export pipelines have been operating at, or near, capacity over this period.
Earlier in the year, Canadian crude producers struggled to get their oil to market. Production rose, but pipelines were operating at capacity and rail companies were focussed on transporting agricultural goods instead of oil.
Approximately 75% of Canadian crude-by-rail exports were destined for the U.S. East and Gulf Coasts, with the remainder going elsewhere in the U.S, such as the West Coast and Rocky Mountain regions.
As a result, Canadian crude was trading at a heavy discount compared to US West Texas Intermediate. The crude transportation crunch has eased recently and the discount is closer to average levels.
However, shipments to the US Gulf Coast are still being impacted by a regulator-mandated reduction in capacity on TransCanada’s Keystone pipeline following a leak late last year in Marshall County, North Dakota.
The Gulf Coast is the largest refining region in the U.S. and has a large capacity to process Canadian heavy crude oil. Refineries in the U.S. East Coast have minimal pipeline access, and therefore bring in crude oil from western Canada by rail (in addition to imports from eastern Canada via marine tanker).