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Rail rolls on in Alberta, with ‘above-ground’ volumes growing
Gary Park for Petroleum News
The high-wire act that is associated with shipments of Alberta crude oil by rail continues its wobbly existence, while delays in building new pipelines are welcomed by railroads.
Keith Creel, chief executive officer of Canadian Pacific Railway, CPR, makes no attempt to fudge the issue from his standpoint.
The longer approval processes drag on for Trans Mountain’s pipeline expansion to the Pacific Coast, Enbridge’s Line 3 replacement to the east and TC Energy’s Keystone XL to the Texas Gulf Coast (though not one of those three is guaranteed to be completed), the better off CPR and Canadian National Railway are.
Creel said “there is so much uncertainty” with the pipelines that his company can engage in contract discussions of three to five years with producers and shippers.
While emphasizing that CPR will not make any large capital investments in new oil terminals and underlining his belief that pipelines will be built, he said “there is too much of a critical need” for crude.
Rail to US sets record Canadian exports by rail to the United States rose to a record level in 2018 after oil price declines caused a sharp drop in shipments from 2013 and 2014, and volumes are on pace to climb even higher this year.
Canada’s National Energy Board said railways moved a total of 25.8 million barrels to the U.S. in the first quarter of 2019, up 34% from the same period of 2018.
CPR projects that it could haul 25,000 tanker loads in the second quarter and could add another 5,000 in the current quarter, compared with 20,000 a year ago as prices improve and the Alberta government continues to ease its production curtailment which has been cut to 175,000 barrels per day from its initial 325,000 bpd in January.
That is an encouraging development for the leading producers, such as Canadian Natural Resources which expects production to begin at its 40,000 bpd Kirby North project later this quarter, while Cenovus will soon make a decision on when to start production at its 50,000 bpd Christina Lake expansion.
But optimism on the production side is always accompanied by unease over shipment challenges.
“Under the surface, we still have a crude takeaway capacity issue that’s yet to be resolved,” Kevin Birn, IHS Markit’s director of North American crude markets, told Bloomberg. “We are not calling for a blowout but there is insecurity in the market.”
Rafi Tahmazian, senior portfolio manager at Canoe Financial, warned that “rail is a very delicate part of the equation that we have to play. Your throw (the Alberta production) curtailments out and you are definitely going to sink the market.”
The Alberta government is testing the mood of the market by starting talks with the private sector it hopes will see producers take over the lease of 4,400 tanker cars to deliver crude to U.S. refineries - a C$3.7 billion deal that was struck by the former New Democratic Party government.
The government said in a statement that it has hired CIBC Capital Markets to “help oversee the divestment of the crude-by-rail program and its transition to the private sector.”
- GARY PARK
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