Market Snapshot: Limited pipeline capacity could lead to nearly 1.2 MMb/d crude-by-rail exports by 2040

Release Date: 2016-02-25

The Constrained Oil Pipeline Capacity Case (Constrained Case) in the Energy Futures 2016 report considers the impact on the Canadian energy system if no new major oil export pipelines are built. The Constrained Case assumes that the planned expansions to Enbridge’s Mainline are completed but the addition of any other pipeline capacity is not assumed. This includes capacity related to the Keystone XL, Northern Gateway, Trans Mountain Expansion, and Energy East pipeline proposalsFootnote 1.

Given these assumptions, the majority of incremental oil production during the forecast period would require alternative transportation to reach market. The chart below shows this as the implied ‘need for rail’, which reaches 1.17 million barrels per day (MMb/d) by 2040.

Figure Source and Description

Source: NEB Energy Futures 2016 Report

Description: The above chart shows seven stacked areas that represent oil export pipeline capacity, which grows from about 2.5 MMb/d in 2010 to almost 4 MMb/d in 2020, then remains flat to 2040. The chart also shows a line that represents oil available for export pipelines or rail, which increases from about 2.2 MMb/d in 2010 to 5.1 MMb/d in 2040. In years where the oil available for export exceeds the oil export pipeline capacity, the implied need for rail is shown by the fuschia area, which increases to about 1.17 MMb/d in 2040.

In the Constrained Case, the increased use of rail leads to lower prices received by Canadian producers, net of transportation costs. This is because rail is a more expensive shipping mode than pipelines. Despite these lower prices, crude oil production continues to grow in the Constrained Case and reaches 5.6 MMb/d by 2040, eight per cent lower than the oil production forecast in the Energy Futures 2016 Reference CaseFootnote 2.

While the implied volume of crude-by-rail exports in the Constrained Case is not far above the estimated capacity of existing crude loading terminals in western Canada, it is roughly quadruple the peak volume of crude-by-rail movements in Canada to date. Considerable adjustments in the rail industry’s services may be needed to accommodate these projected volumes. Potential issues include railway and terminal bottlenecks, tanker car shortages, and competition with other commodities for transportation services.

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