Alberta oil producers are struggling to get crude to market as Canadian pipelines are at full capacity and rail lines are pressured to ship agricultural products at certain times in the year. Reuters photo by Todd Korol.
Alberta oil producers have boosted production, but pipelines are at full capacity
Shortages of Canadian pipeline capacity and rail car availability have forced some Alberta oil producers to transport their crude oil by truck from Canada to Montana. From there, the heavy crude will be shipped off to customers in the United States and overseas.
As well, rising Canadian output has added to the problem. Crude production in Canada jumped by 8 per cent in the last year to a record 4.2 million barrels per day (b/d) and output is expected to continue to rise.
But, plans for new oil pipelines have been challenged by environmentalists, First Nations and some local and provincial governments. Earlier this month, Kinder Morgan suspended work in its $7.4 billion Trans Mountain expansion project and TransCanada Corp has not yet fully committed to complete its Keystone XL project.
Rail companies face political pressure to ship agricultural products during certain months and are looking for longer-term deals with shippers, however, oil companies would rather be able to shift to pipelines if space becomes available.
It all adds up to Alberta oil producers feeling the pinch at a time when crude prices are rising after three tough years. As well, Venezuelan oil production of declining sharply, making Canadian heavy crude a high demand product for US Gulf Coast refineries designed to process the crude.
Gear Energy Ltd, an Alberta-based oil company which pumps about 7,500 b/d says it recently lost a customer in Asia because it could not secure shipment to the West Coast.
“We’ve never had more inbound calls looking for heavy oil,” Gear Chief Executive Officer Ingram Gillmore told Reuters. “And we have never had more challenges actually getting it to them. It is very frustrating.”
Big rigs can only carry 200 barrels of oil. A unit train can haul 60,000 barrels and the Keystone Pipeline transports 600,000 b/d. Labour costs are higher as trucks require a driver and fuel to travel long distances. And there is a shortage of drivers in Western Canada.
According to Reuters, moving crude by truck can cost at least 10 times more on a mile-per-mile basis than rail or pipeline.
Despite the higher costs to producers, business is booming for crude trucking companies. “We have demand for 50,000 b/d and we can move about a fifth of that,” Jarrett Zielinski, chief executive of Torq Energy Logistics told Reuters. His Alberta-based company owns and operates rail loading facilities and 275 trucks.
Crude exports from Canada by trucks nearly tripled from 2015 to 2017 and is still on the rise in 2018, according to StatsCan data. In 2017, exports by road were at over 51,000 and in the first two months of 2018, jumped to an average of 180,000 a month.
Rail shipments in 2017 averaged 4 million barrels per month.
Shippers keep an eye on the Canadian crude discount versus US WTI. If the discount is over $20/barrel, Zielinski says producers will pay to haul crude up to five hours, more than twice as far as what usually makes economic sense.
Reuters reports Ceres Global Ag Corp. of Northgate, Saskatchewan, is working on a $1 billion facility which would transfer oil from truck to rail and then on to the BNSF system. The move comes after oil companies began calling the company, which is a grain and fertilizer handling facility, to assist them to gain access to the US.
“Every day they have fewer options of where to take it,” Ceres CEO Robert Day told Reuters. “We’re going to work real hard to make that happen in 2018.”
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