Canadian crude oil production recently began to outpace access to pipelines. The increase in oil, combined with leaks and halted pipeline construction, has led exporters to use rail more frequently as a way to transport oil to the U.S.
According to a report from the Energy Information Administration (EIA), several pipeline projects, including those running to the United States and others across Canada to Atlantic and Pacific ports, have either been canceled or significantly delayed. Among the projects impacted is the 590,000 barrels/day Keystone pipeline which is currently running at only 80 percent capacity due to a November leak.
The highest area of demand for Canadian oil is ironically the area producing the most oil within the domestic U.S. – the Gulf Coast. The demand is because refineries in this area are designed to handle oil classified as heavy crude oil, which is what is coming from north of the border. Traditional suppliers from Venezuela and Mexico have experienced production declines that have resulted in lower exports, making Canada an increasingly important source of heavy crude oil.
In January, the U.S. Gulf Coast imported more crude oil from Canada (448,000 b/d) than from Venezuela (438,000 b/d) for the first time on record. The influx of Canadian crude by rail, which set a record last December when it topped 203,000 b/d, has also driven prices down. And while U.S. crude oil by rail imports from Canada fell to 129,000 b/d in January 2018, year-over-year volumes remain higher.