Vol. 25, No.08 Week of February 23, 2020
Providing coverage of Alaska and northern Canada's oil and gas industry

Derailment troubles

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Two crude unit trains leave tracks in Saskatchewan; producers looking for capacity

Gary Park

for Petroleum News

Imperial Oil, Suncor Energy and Cenovus Energy - most of the big names among Canadian oil producers - have all said in recent weeks that they are ready to increase their crude-by-rail shipments as the Alberta government has started easing the limits on output.

But as quickly as these companies raised their hopes of utilizing rail to access more markets they were sideswiped within two months by two derailments about 6 miles apart in rural Saskatchewan, compounded by spreading blockades of rail networks as First Nations protests against construction of energy pipelines in British Columbia spread across Canada.

The two fiery crashes by Canadian Pacific Railway, CP, trains spilled a combined 2.7 million liters of crude, forcing Transport Minister Marc Garneau to cut in half the speed limits for trains hauling oil, propane and other flammable goods.

While the cause of the accidents remains unknown authorities have refused to comment on the prospect of sabotage.

The new speed limits of 20 miles an hour in cities and 25 mph for other areas was scheduled to last until March 3, though Garneau said it could be lengthened pending results of the government inquiry, which will attempt to establish whether there is a link between the two events.

Canadian National Railway, CN, the other of Canada’s two leading railroads, said the order “will have a material impact on our overall capacity unless we take steps to protect network fluidity,” adding that crude shippers must apply to CN for permits to move crude and other flammable liquids.

Volumes up sharply

The volumes of crude moved in the final quarter of 2019 rose sharply, driven by a shortage of pipeline capacity and the easing of Alberta’s production limits, with CP estimating it moved a record of about 23.4 million barrels in the period.

In late 2019, oil producers said they were scrambling to round up additional cars in anticipation of further relaxation of the Alberta government’s quota, which was set at 3.8 million barrels per day in November.

Energy Minister Sonya Savage said the companies could apply for higher production limits if they could demonstrate their ability to ship all of the additional volumes by rail without using pipelines.

Suncor Chief Executive Officer Mark Little said his company had contracted rail cars to ship another 30,000 bpd, while Cenovus Chief Executive Officer Alex Pourbaix said his company planned to increase its rail shipments to 100,000 bpd from 80,000 bpd.

Imperial Chief Executive Officer Brad Corson said it made good sense “for us to ship barrels on the rail” and expects shipments out of its Edmonton Rail Terminal to exceed 100,000 bpd.

He was encouraged by comments from the Alberta government that it expected to eliminate the production curtailment by the end of 2020.

Capacity estimated at 300,000 bpd

The Alberta government estimates railroads have the capacity to transport up to 300,000 bpd out of the province.

Canadian Natural Resources Ltd. was non-committal about signing more CBR contracts. President Tim McKay said there was no problem getting crude onto the rail, but beyond that point there were difficulties settling on a destination and uncertainties about the cost of unloading.

Alberta Premier Jason Kenney has indicated the province is on the verge of selling CBR contracts that his predecessor Rachel Notley signed a year ago to lease 4,400 tanker cars capable of transporting 120,000 bpd at a cost of C$3.7 billion over three years.

Kenney, having pledged to scrap those deals, said earlier in February that his government has sold off C$10 billion in CBR contracts to private companies, at a cost to taxpayers of about C$1.3 billion.

The importance of accessing markets was underscored in new statistics released by Export Development Canada, which estimated that energy accounts for 19% of Canada’s exports, topping the list of commodities, followed by automobiles and parts at 13%, ores and minerals at 12% and agriculture products at 10%.

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