By Arathy Somasekhar

HOUSTON (Reuters) – A looming labor dispute at Canada’s two main railroads is unlikely to significantly reduce oil exports to the United States due to excess capacity on Trans Mountain and other pipelines, according to sources.

North American shippers, including fertilizer supplier Nutrien (NYSE:NTR) and logistics firm C.H. Robinson, are preparing for potential simultaneous stoppages at Canadian National Railway (TSX:CNR) and Canadian Pacific (NYSE:CPKC). Such stoppages could potentially cost the Canadian economy billions of dollars.

CN announced it will enforce an embargo on new reservations for hazardous materials and refrigerated containers starting Thursday. Similarly, CPKC has halted new shipments of hazardous chemicals or dangerous goods.

A strike or lockout may occur as early as Thursday.

However, it seems oil exports may remain largely unaffected. U.S. rail imports of Canadian crude have significantly decreased in recent years, with averages around 55,000 barrels per day in May, the lowest since the pandemic price crash of 2020. The U.S. imports about 4.2 million bpd from Canada, primarily via pipeline.

“Anyone receiving crude by rail is seeking alternatives, such as substitution with pipeline-grade products,” said Elliot Apland of MarbleRock Advisors.

During export logjams, prices for Western Canadian Select crude typically decrease. Nevertheless, Trans Mountain’s expansion and available capacity on other pipelines should help limit substantial discounts, according to industry analysts.

“Crude-by-rail is not as critical to Canada’s market as it was before Trans Mountain’s expansion,” stated Jeremy Irwin, senior oil markets analyst at Energy Aspects.

The Trans Mountain expansion nearly tripled the flow of crude from Alberta to the Pacific coast to 890,000 bpd. Maintenance at U.S. Midwest refineries, which process Canadian crude, could also provide additional pipeline capacity, he added.

WCS for September delivery in Hardisty, Alberta, settled at $12.25 per barrel below U.S. West Texas Intermediate, compared to an average discount of $18.65 in 2023. This relatively small discount suggests minimal market concern about transporting Canadian crude.

“We’re closely monitoring the situation and preparing plans to mitigate impacts from any potential strike or lockout,” said a spokesperson for Cenovus Energy (NYSE:CVE).

REFINED PRODUCTS

Canadian propane primarily relies on rail for domestic and export markets. Any disruptions could significantly hinder fuel and chemical manufacturing deliveries.

AltaGas (TSX:ALA)’s Ridley Island Propane Export Terminal has increased its propane stockpile, according to Energy Aspects’ Irwin.

Some companies are stockpiling diesel for generator use on job sites. A rail disruption extending beyond two weeks could leave some diesel stranded at Alberta refineries, including Imperial Oil (NYSE:IMO)’s Strathcona and Cenovus’ Lloydminster refinery.

Canadian gasoline markets are largely localized, with production primarily remaining within the region. Major gasoline markets are directly connected to refineries by pipelines, while rail and trucks also distribute gasoline to other areas.

“Everyone is trying to ensure inventories can support 14 days of free rail logistics and still remain stable,” remarked a senior industry executive who wished to remain anonymous.