Market Snapshot: Canadian Crude by Rail in 2021

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Release date: 2022-06-22

Despite Canadian crude oil production reaching pre-pandemic levels, Canadian crude oilDefinition* volumes exported by rail (crude-by-rail exports) dropped by 14% in 2021, averaging 145 800 barrels per day (b/d), decreasing from about 170 400 b/d in 2020. At the same time, total crude oil exports increased by about 3% in 2021 over 2020, with increased volumes transported via pipeline primarily due to additional pipeline capacity coming into service in both Canada and the U.S.Footnote 1

Pipelines are generally the preferred mode of transporting crude oil, with 89% exported via pipeline in 2021, and 87% in 2020. This preference is partially due to lower cost of transportation on a per-barrel basis. Rail is generally used more heavily when pipeline capacity is limited and the price difference, or differential, between Canadian and United States (U.S.) crude prices is wide enough to justify the higher transportation costs of rail.

The most commonly quoted price for Canadian crude oil is Western Canadian SelectDefinition* (WCS), a heavy sour oil blend in western Canada, priced relative to West Texas IntermediateDefinition* (WTI), a light sweet crude priced in the U.S. Figure 1 shows how Canada’s crude-by-rail exports tend to fluctuate with the WTI-WCS price differentialDefinition*.Footnote 2Footnote 3

Figure 1: Crude-By-Rail Exports and Canadian Crude Oil Price Differentials (WTI – WCS)

Sources and Description

Sources: Prices from NE2 Group Inc.; rail volumes from CER – Canadian Crude Oil Exports by Rail – Monthly Data.

Description: This figure shows Canada’s monthly average crude-by-rail exports, in barrels per day (left axis) and the WTI-WCS price differential in U.S. dollars per barrel (right axis).Footnote 4 Crude-by-rail exports tend to fluctuate with WTI-WCS price differential, with both increasing dramatically in late 2018, dipping in early 2020 at the onset of the pandemic, and then stabilizing.

After crude-by-rail exports experienced both record highs and historic lows in 2020, 2021 was a much more stable year. While there was some recovery after the early COVID-19 pandemic lows, the 2021 annual average crude-by-rail export volumes were just below the decade average of 150 000 b/d. 2021 also marked the lowest annual average crude-by-rail export volumes since 2017. Canadian crude-by-rail export volumes into the U.S. Gulf Coast (PADD IIIDefinition*) declined the most, down more than 20 000 b/d in 2021 over 2020, and to levels not seen since 2017.Footnote 5

Canadian Crude Production Recovered, Yet Crude-by-Rail Exports Remain Below Pre-Pandemic Levels

Although Canadian crude oil production and exports reached pre-pandemic levels in 2021, crude-by-rail exports remained much lower than most of 2019 and early 2020. This is due to several market factors. First, more pipeline capacity became available out of western Canada in the fall of 2021, reducing the need for rail.Footnote 6 Second, recent U.S. pipeline capacity additions increased the ability for western Canadian production to move to the U.S Gulf Coast by pipeline, one of the main destinations for Canada’s oil exports by rail.Footnote 7 Third, Canadian crude oil price differentials remained narrow through much of 2021, and did not provide an incentive for companies to expand their use of rail.

Since October 2021, crude-by-rail exports had maintained a lower, but consistent, volume of around 132 000 b/d, until February 2022 when volumes dropped to 124 800 b/d. Even with WTI and other global crude oil prices exceeding US$100 per barrel in early 2022, Canadian crude oil price differentials have generally remained constant. Pipeline capacity out of western Canada continues to be highly utilized, although some small amount of spare capacity generally becomes temporarily available as oil sands producers reduce production during routine maintenance season beginning in the spring months.

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