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TransCanada Corp.’s Keystone pipeline to the U.S. shut for almost two weeks last month after a spill in South Dakota, contributing to rising oil inventories in Western Canada. While service on the line has resumed, it’s required to run at a reduced pressure, meaning less oil can pass through.

Enbridge said Monday it would ration space on some of its pipelines by another 5 per cent in December. The announcement came after the company required shippers on light oil feeder pipelines around Edmonton, Alberta, to restrict deliveries because of “high inventories.” Enbridge’s main line ships heavy and light crude from Edmonton to Superior, Wisconsin.

Rising Production

Crude export pipelines were already filling up as new oilsands production entered the market. Suncor Energy Inc.’s Fort Hills mine, for example, is starting up now and scheduled to reach 20,000 to 40,000 barrels a day by next quarter.

When pipelines fill up, excess crude is typically pushed onto rail cars, requiring a bigger price discount for the crude to make the more expensive form of transport profitable.

Space on rail cars is in short supply after three disruptions to the Canadian National Railways Co.’s system in the past two months. The company is playing “catch up,” Kate Fenske, a spokeswoman, said by phone Monday. Business on all of the company’s lines is up 10 per cent since last year, she said.

Canadian National gives shippers who have committed to use capacity on the network priority when space is limited because the rail company would have to pay a penalty for shipments not delivered, Fenske said. But Canadian oil shippers have been reluctant to sign up for committed space on rail networks after three new oil export pipelines were approved over the past year, Genscape’s Walls said. That’s in contrast with shippers of other commodities, who have been signing up for space, he said.

Two of the new oil pipelines, the expanded Trans Mountain line to British Columbia and Enbridge’s Line 3, could start operation as early as 2019.

“You may not see a lot of people committing on rail right now and that’s causing the differentials to blow out,” Walls said.

Bloomberg.com