Lack of Oil Pipeline Capacity

TransCanada Corp.’s cancellation of the Energy East pipeline leaves Canadian oil producers more dependent than ever on the Keystone XL and Trans Mountain proposals, two projects facing ardent opposition in their own right.

Energy East would have given oil producers in Alberta and Saskatchewan, who are heavily dependent on buyers in the U.S., another market for their crude by carrying about 1.1 million barrels a day to refineries and a marine-shipping terminal in eastern Canada. TransCanada cancelled that project on Thursday amid regulatory hurdles and weaker oil prices.

Pipelines in Western Canada, which holds the world’s third-largest crude reserves largely in Alberta’s oil sands, can carry about 3.3 million barrels of crude a day, according the the Canadian Association of Petroleum Producers, or CAPP. Meanwhile, the area is expected to produce 3.92 million barrels a day this year and 4.2 million next year as a number of large oil-sands projects come online. The pipeline pinch already had producers shipping more of their crude by rail, which can cost as much as three times more to get oil from Alberta to the U.S. Gulf Coast.

Should Keystone XL and Trans Mountain fail to be built, oil producers could end up shipping more than 300,000 barrels a day via rail for at least five years, and some producers could shut in operations,

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