By Arathy Somasekhar

HOUSTON, Aug 19 (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, people close to the matter said.

North American shippers such as fertilizer supplier Nutrien ( NTR )

and U.S. logistics firm C.H. Robinson ( CHRW ) are

bracing for simultaneous stoppages at the Canadian operations of

Canadian National Railway ( CNI ) and Canadian Pacific Kansas

City ( CP ) that could cost the nation's economy

billions of dollars.

A strike or lockout could start on Thursday.

But oil exports may be largely unscathed. U.S. rail imports

of Canadian crude have fallen sharply in recent years, averaging

around 55,000 barrels per day in May, U.S. Energy Information

Administration data showed, the lowest since the pandemic price

crash in 2020. The U.S. imports about 4.2 million bpd from

Canada, mostly by pipeline.

"Anybody receiving crude by rail right now is figuring out

what alternatives they have, whether it's an alternative grade

that can be substituted on the pipeline, or if a buyer is

willing to take something else," said Elliot Apland at

MarbleRock Advisors, which helps negotiate rail supply-chain

contracts.

Prices of Canada's Western Canadian Select crude typically

fall during export logjams. However, Trans Mountain's expansion

in May and available capacity on other pipes should limit deep

discounting, industry experts and analysts said.

"Crude-by-rail is not as essential to the Canadian market as

it was prior to the Trans Mountain expansion," said Jeremy

Irwin, a senior oil markets analyst at consultancy Energy

Aspects.

Trans Mountain's expansion nearly tripled the flow of crude

from landlocked Alberta to the Pacific coast, to 890,000 bpd.

Maintenance at U.S. Midwest refineries, which buy and

process Canadian crude, will also free pipeline space for

additional barrels, Irwin added.

WCS for September delivery in Hardisty, Alberta, settled on

Friday at $12.25 a barrel below U.S. West Texas intermediate

crude, according to brokerage CalRock, compared to an average

$18.65 discount in 2023. The relatively small discount indicates

little market concern about moving Canadian crude.

"We're closely monitoring the situation and putting plans in

place to mitigate any impacts if a strike or lockout were to

happen," a spokesperson at producer Cenovus Energy ( CVE )

said.

ConocoPhillips Canada said it ships refined product

on CPKC and other rail carriers, but has flexibility to manage a

sustained strike. The company does not expect any impact to its

Surmont oil-sands production.

REFINED PRODUCTS

Canadian propane relies mainly on rail to reach domestic and

export markets. Any stoppage could significantly reduce

deliveries for fuel and chemical manufacturing.

AltaGas' ( ATGFF ) Ridley Island Propane Export Terminal in

British Columbia has stocked up on propane, Energy Aspects'

Irwin noted.

Some companies that use generators for electricity on job

sites have been stockpiling diesel, Irwin said, adding that a

rail stoppage longer than two weeks could strand some diesel at

Alberta refineries.

Those refineries include Imperial Oil's ( IMO ) Strathcona,

Suncor Energy's ( SU ) Edmonton, Shell's Scotford

Complex, North West Redwater's Sturgeon refinery and Cenovus'

Lloydminster refinery.

Canada's gasoline markets tend to be localized and

production stays in the region. Many major gasoline markets are

connected directly to refineries by pipelines, while railways

and trucks also distribute gasoline in other regions.

"Everyone is trying to get the inventories to a point where

they could free rail logistics for 14 days and still be OK, said

a senior industry executive who declined to be identified.