Market Snapshot: Annual crude by rail volumes continued to decline in 2023, despite monthly increases in second half of the year

Release date: 2024-07-03

Despite crude oil^Definition* production in western Canada reaching record highs in 2023^{Footnote 1}, Canadian crude oil volumes exported by rail declined by 31% overall in 2023, averaging 98,300 barrels per day (b/d) in 2023, down from 143,300 b/d in 2022. This drop is largely due to crude oil increasingly being exported by pipeline^{Footnote 2} instead of rail, after additional pipeline capacity was brought online in recent years^{Footnote 3}.

In 2019, crude exports by rail reached an annual historical high because pipelines exiting western Canada were operating near or at full capacity. This trend continued into early 2020, with February 2020 hitting a record monthly high of 412,000 b/d. Since then, annual average volumes exported by rail have been dropping, first from the COVID-19 pandemic oil demand decline^{Footnote 4}. The decline continued as additional pipeline capacity became available for oil exports out of western Canada since October 2021, with completion of Enbridge Mainline's Line 3 Replacement program, which added 370 million barrels per day (MMb/d) of capacity.^{Footnote 5}

Figure 1: Monthly Average of Crude by Rail Exports and Canadian Crude Oil Price Differentials (WTI - WCS)

Source:CER Crude Exports by Rail Statistics, One Exchange Corp

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 US$ per barrel (right axis). Crude-by-rail exports tend to fluctuate with WTI-WCS price differential, both increasing dramatically in late 2018, dipping in early 2020 at the onset of the pandemic, and then stabilizing through to mid-2022. In May 2022 monthly average crude-by-rail exports started declining, reaching a low point in June 2023 before starting to increase again through the remainder of 2023. The crude oil by rail exports did not follow WTI-WCS price differential since mid-2022 due to other factors such as pipeline capacity and oil production volumes.

Crude oil exports by rail continuously decreased month over month from 173,100 b/d in May 2022 to 74,900 b/d in June 2023, reaching a 3-year low (Figure 1). This is partly because there was sufficient export pipeline capacity available to meet demand during that time. The lowest crude oil export volumes by rail within this period, observed in June 2023, are attributed to routine seasonal maintenance at some oil sands production facilities.

Monthly crude oil export volumes by rail increased in the second half of 2023, nearly doubling from 74,900 b/d in June 2023 to 127,700 b/d in November 2023. This was largely because oil sands producers ramped up production in anticipation of the Trans Mountain Expansion Project coming into service^{Footnote 6}. At the same time the price of Western Canadian Select (WCS)^Definition* in Canada became further discounted relative to North American oil benchmark, West Texas Intermediate (WTI)^Definition*. The discount, or differential^{Definition*Footnote 7}, generally needs to be high enough to justify additional crude-by-rail volumes. The WTI-WCS differential widened from US$11.48 per barrel in June 2023 to US$25.27 per barrel in November 2023 (Figure 1).^{Footnote 8}

Pipeline is the preferred transport mode for crude oil primarily due to the lower cost of transportation on a per-barrel basis. Rail is still an integral part of the oil transportation system partly because rail can serve regions without pipelines and can be relied upon when pipelines are running at capacity. Rail can also get crude oil to higher priced markets like the United States (U.S.) Gulf Coast where Canadian heavy oil is in high demand.^{Footnote 9}

Date modified: 2024-07-02

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