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Canada: Riding the risky rails
Moody’s warns CBR ‘reputational and social risks’ outweigh financial risks, notes improving safety; two derailments within weeks Gary Park for Petroleum News
Just as Keystone XL was added to the growing stack of oil pipeline cancellations, motivating Western Canada’s oil producers to shift their attention back to shipping crude by rail, CBR, Moody’s Investors Service unloaded a tankerload of gloom.
The financial services giant forecast that 2021 CBR shipments in Canada will remain below the peaks of a year ago.
It added to that bleak outlook by suggesting that reputational and social risks associated with rail accidents far outweigh the financial risk that CBR poses for Canada’s two leading rail freight operators - CN Rail and CP Rail - which account for more than 95% of the country’s crude shipments, even though they continue to improve their safety measures.
While CBR amounts to less than 2% of Canadian rail carloads, they carry a potential social-impact risk disproportionate to the business they generate, Moody’s said.
The firm said that railway operators, which are subject to “common carrier” obligations where they have to handle all traffic offered to them, assume considerable social risk as they face changing policies, socially driven regulation and investment decisions.
Moody’s said it expects both rail operators and the Canadian government will continue their efforts to increase the safety of both rail transport and the movement of dangerous goods in Canada.
The firm noted that both CN Rail and CP Rail commit about 20% of their annual revenue to capital spending, of which about half goes toward their infrastructure to help prevent derailments.
In addition, Moody’s said steps have been taken by both railroads to reduce accidents, while Western Canadian crude and natural gas producers are developing less flammable technologies to “solidify their bitumen for rail transport.”
In addition, the Canadian government has committed C$25 million over three years to improve rail safety, it said.
CBR derailments It was almost as though Moody’s had an uncanny insight into the future. Within three months of releasing its assessment two CBR derailments by CP Rail occurred in central Saskatchewan, both close to what would have been the origin and terminus of the Keystone XL pipeline.
In the second accident, which occurred on Feb. 6, 32 tank cars left the tracks and several were breached, releasing petroleum crude oil product which ignited. As a safety measure, the 85 residents of a nearby village were evacuated.
The Saskatchewan Ministry of Environment estimated 10,064 barrels of oil were spilled. Drilling programs were started to determine the impact on soil and groundwater.
CP Rail implemented an immediate slow order on its crude trains as a “precautionary measure while it gathers facts related to the incident.”
The latest data released by the Canada Energy Regulator, CER, on Jan. 24 shows CBR exports to the U.S. averaged 173,095 barrels per day in November, up almost 80,000 bpd from October, but far short of the highest monthly count for 2020 of 411,991 bpd in March and less than all but one month in 2019 - the 132,426 bpd in February.
Noting the volatility of CBR numbers since the declaration of the COVID-19 pandemic, the CER said the use of rail for crude oil is more expensive than shipping by pipelines and is thus used “only when pipelines are full or if the destination market offers much higher prices than can be achieved in Canada.”
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