HOUSTON—Canadian crude shipments to the U.S. by rail could rise more than 60% this year on demand by Gulf Coast refiners for the heavy crudes and the wide differential between Canadian grades and the U.S. benchmark.

The rail shipments could reach as much as 350,000 barrels per day (bbl/d) by year-end and average some 400,000 bbl/d in 2019, estimated analysts at Tudor, Pickering, Holt & Co. Last year, the shipments averaged 130,000 bbl/d, according to U.S. government data.

Canadian crudes have been replacing heavy oil from Venezuela and Mexico at the Gulf Coast, due to production declines in both countries.

“Canadian barrels are a great fit for Gulf Coast refiners right now. It’s just a matter of getting those barrels down here,” said a Gulf Coast trader.

Western Canada Select for February delivery traded Jan. 4 at $25.05 per barrel below West Texas Intermediate, the widest since December 2014. Including transportation costs of between $11 and $14 a barrel to ship the crude by rail to the Gulf Coast, it is affordable to more refiners, said analysts and traders.

“Based on where the differentials are today, as an oil producer, you’re incentivized to ship product by rail to the Gulf Coast,” said Matt Murphy, a Tudor, Pickering researcher.

The current differential is driven in part by increased supplies. Canadian crude oil production averaged 4.2 million bbl/d in 2017, according to National Energy Board estimates, up from 3.9 million bbl/d in 2016.

Production is expected to rise further this year as new projects like Suncor Energy’s 190,000 bbl/d Fort Hills oil sands plant expand operations.

However, the increase in shipments will be capped by railroad operators’ willingness to accept spot deliveries. Companies such as Canadian National Railway have insisted on long-term crude-by-rail commitments before providing more rail capacity.

“There is a two- or three-year window, irrespective of what happens to pipelines, that rail is going to be required to move product to market,” said John Zahary, CEO at Altex Energy, which owns five rail terminals in Canada.