Keystone Rejection Seen Pushing Crude Back Onto Rail Cars

  • Crude-by-rail exports rise for first time in four quarters
  • Keystone rejected earlier this month to fight climate change

The first increase in Canadian crude exports by rail in a year is seen continuing after U.S. President Barack Obama rejected the Keystone XL pipeline project earlier this month.

Shipments in the third quarter rose 38 percent to about 116,000 barrels a day, the first increase in a year, the National Energy Board said in a report Wednesday. Crude oil transported in western rail cars jumped 22 percent, the biggest gain since 2012, Statistics Canada said in a separate report. Last month’s rejection of TransCanada Corp.’s project to build the Keystone XL crude pipeline to the U.S. will be a “short-term boon” for struggling crude-by-rail shippers, Genscape said in a report Tuesday.

“We might see some more crude-by-rail coming down from Canada,” Carl Larry, head of oil and gas for Frost & Sullivan LP, said by phone. “Rail might be the more economic way and fundamental way to bring it down.”

The discount of Canadian heavy crude to U.S. futures, a measure of the profitability of sending crude south, widened to $14.98 a barrel in the third quarter from $9.72 during the previous three months, data compiled by Bloomberg show.

President Obama rejected the Keystone XL project earlier this month on grounds the pipeline would speed climate change. Energy producers and politicians spent years lobbying for a U.S. permit for the $8 billion project that TransCanada first sought approval to build in 2008.

Western Canada’s crude output will increase 21 percent by the end of 2019, Genscape said Tuesday. Without Keystone, a “small” window has been opened for crude by rail that will last at least a year and a half, Genscape said.

Shipments by rail constituted 3.5 percent of Canadian crude exports out of the country over the past three years, the NEB said. Ninety percent of exports have gone to the U.S. Gulf Coast and East Coast.