March 5, 2015 / 11:09 PM / 3 years ago

UPDATE 1-Canadian crude-by-rail growth slows as low oil prices bite

(Adds quotes, outlook for crude-by-rail growth)

By Nia Williams

CALGARY, Alberta, March 5 (Reuters) - Canadian crude-by-rail exports dipped in the fourth quarter from the previous three-month period, National Energy Board data showed on Thursday, as poor netbacks deterred some shippers from loading barrels onto trains bound for U.S. markets.

Canada exported 173,342 barrels per day of crude by rail between October and December last year, down 5 percent from 182,396 bpd shipped across the border in the third quarter.

However, fourth-quarter rail exports were still 16 percent higher than the same period a year earlier.

The quarter-on-quarter slowdown underlines how weak oil prices are putting the brakes on the North American crude-by-rail boom.

Benchmark oil prices around $50 a barrel and tight Canadian crude differentials around $14 per barrel below U.S. crude means some routes have become uneconomic.

“The differentials have come in quite a bit so they just have not been covering the railing costs,” said Martin King, analyst at FirstEnergy Capital.

Canada’s largest producer, Suncor Energy, no longer ships crude by rail from northern Alberta to the U.S. Gulf Coast, despite strong demand for Canadian heavy crude in North America’s largest refining area.

The journey is no longer economic, Suncor Chief Executive Steve Williams said last month, adding that crude-by-rail into the company’s 137,000 bpd Montreal refinery was “marginal.”

Slower growth means a Canadian Association of Petroleum Producers forecast of 700,000 bpd of Canadian crude being transported by rail by end-2016 may be hard to reach.

“I suspect there may be some dampening on that,” said Greg Stringham, CAPP’s vice president of oil sands and markets. “Early indications are with low oil prices and the higher cost of rail it is tough to continue that (pace) going forward.”

Canadian Pacific Railway, one of the country’s two major railroads, has downgraded its 2015 crude-by-rail forecast to 140,000 carloads from 200,000 carloads previously.

New loading terminals starting up this year such as Kinder Morgan and Imperial Oil’s facility in Edmonton, Alberta, and a Plains Midstream Canada terminal in Saskatchewan mean Canadian crude-by-rail loadings will continue to grow, albeit at a slower pace than previously expected.

Glen Perry, vice president of marketing at privately held junior Grizzly Oil Sands, said netbacks on crude-by-rail were “horrible” but that some small producers without pipeline connections had no alternative.

“We would lose money going anywhere (by rail), so the question is where do we lose the least amount,” he said. (Editing by Steve Orlofsky)

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