More oil will need to be transported by rail over the next 10 years as pipeline capacity from Western Canada, the U.S. Bakken shale deposit and the Rockies lags rising production, according to a report by ITG Investment Research.
Even if all planned projects such as Keystone XL and pipelines to Canada’s coast are built, about 600,000 more barrels a day must move by rail in those areas by mid-2014, according to the report by Calgary-based analysts for the firm, a unit of the New York brokerage Investment Technology Group Inc.
Oil by rail will have to increase even more rapidly from its current level of about 1 million barrels if no new pipelines to Canada’s coast are built, according to the report. If three proposed pipelines aren’t completed, rail will have to carry more than 2 million barrels a day by 2018 and more than 3.5 million barrels by 2023, it said.
“If we remove Northern Gateway, the Trans Mountain Expansion, and Eastern Access from the pipeline stack, rail capacity would need to grow through the forecast horizon,” exceeding 2 million barrels a day by 2018, the ITG analysts wrote. “We consider this an improbable scenario because it assumes that major new pipeline construction is halted for the next decade.”
The report, entitled “No More Guessing: Canada” estimates that Canadian production will grow to 5.7 million barrels a day by 2025, making Canada the world’s fourth-largest oil producer after the U.S., Saudi Arabia and Russia, from its current spot as sixth largest. The estimate is derived from ITG’s analysis of historical well data in Canada and announced projects.
ITG’s Canadian growth estimate compares with 5.6 million barrels a day in 2025 in the production forecast released last year by the Canadian Association of Petroleum Producers, an industry group.
TransCanada Corp.’s Keystone XL pipeline is awaiting a U.S. government decision, to come later this year. If approved, it will bring as much as 830,000 barrels a day from Canada and the Bakken to refineries on the Gulf Coast after it’s built in 2015.
The company is also contemplating a so-called Eastern Access conversion of a pipeline from gas to oil that would transport as much as 1 million barrels a day to refineries in eastern Canada, TransCanada’s President of Energy and Oil Pipelines Alex Pourbaix said on the company’s fourth-quarter conference call last month.
Enbridge Inc.’s Northern Gateway pipeline would bring as much as 525,000 barrels a day to the British Columbia port of Kitimat. The company expects it could complete the project in 2017.
Kinder Morgan Energy Partners LP plans almost to triple the size of its Trans Mountain pipeline from near Edmonton, Alberta, to Vancouver to 890,000 barrels a day by 2017.