|
Roller-coaster on Canada’s rails Signs of oil rail shipment resumptions after decline face setback; Transportation Safety Board recommends tougher regulations GARY PARK For Petroleum News
After a year of month-over-month declines in crude oil shipments that have forced them to cut freight rates, Canada’s railroads entered 2017 with some mildly encouraging news only to run headlong into a call by the federal transport regulator for the Canadian government to toughen rules for oil trains.
The latest government statistics reveal that shipments of fuel and crude oil experienced a decline of 16 percent in 2015 that accelerated in mid-2016, partly reflecting both the sharp drop in crude prices and in oil sands production following devastating forest fires in northern Alberta.
The National Energy Board estimated that rail hit a peak in October 2014 of 241,000 barrels per day before plunging to about 100,000 bpd by the end of 2015, only 10 percent of Western Canada’s crude oil rail loading capacity of 1,075,000 bpd.
The federal regulator has yet to release its numbers for 2016, although industry estimates put the rail volumes at 120,000 bpd in November.
Pipeline is king Jean-Jacques Ruest, executive vice-president at Canadian National Railway, conceded that “the pipeline really is king. It dominates the marketplace” on a cost-per-barrel basis.
Just before he stepped down in February as chief executive officer of Canadian Pacific Railway, Hunter Harrison said he expected continued headwinds for crude shipments.
Dirk Lever, an energy infrastructure analyst at AltaCorp Capital, said the reason was simple - shipping costs on pipelines are about C$5 a barrel compared with C$10-C$15 by rail.
The blow for Canada’s two big railroads is compounded by the fact that they have embarked on expensive debottlenecking initiatives on congested stretches of track in recent years, spurred on by forecasts of a sharp rise in crude-by-rail shipments.
Crude oil producers and pipelines have also seen their investments in rail shipping capacity experience a setback, notably a joint venture by Imperial Oil and Kinder Morgan to control 210,000 bpd of rail capacity in Alberta and Cenovus Energy, which owns 100,000 bpd of capacity.
“People have been calling us, hedging their bets,” said John Zahary, chief executive officer of Altex Energy, a crude-by-rail logistics firm, which moves about 20,000 bpd from three main rail offloading facilities, down 10,000 bpd from its peak.
NEB clings to growth prediction However, the NEB is clinging to its prediction of a possible tenfold growth in crude-by-rail operations if no new major pipelines are built from Alberta to domestic and both U.S. and offshore markets to handle its projected growth in oil sands output to 6.1 million bpd over the next 25 years from current levels of 3.8 million bpd.
Under its “constrained-case” model, the NEB said that if its 2040 target is achieved at least 1.2 million bpd will need to travel by rail, although the regulator’s chief economist Shelley Milutinovic said that unless new pipelines are built production in 2040 could fall 500,000 bpd short of the board’s forecast.
Call for study The glimmers of hope for a turnaround in rail business may have been overshadowed in a February recommendation by Canada’s Transportation Safety Board which has urged the federal government to study the factors that cause fiery train derailments, including train speed, tank car design and worker training, calling for a change of rules to prevent loss of life and environmental destruction.
The recommendation follows an investigation into a 2015 derailment in Northern Ontario of a 100-car Canadian National train, when 19 oil cars burned for five days while spilling 1.7 million liters into a nearby river and lake.
TSB Chair Kathy Fox said it was only lucky the accident occurred on an isolated stretch of rail, but the factors involved - inadequate track maintenance and personnel training, the train speed and tank cars that were not sufficiently robust raise concerns about the outcome of a similar accident in an urban area.
She said the TSB believes currently permitted speeds - 50 miles an hour outside urban areas and 40 mph in densely populated areas - are “too high” for trains hauling flammable goods.
The TSB is still haunted by the 2013 explosion of a runaway train carrying Bakken crude that killed 47 people in the Quebec town of Lac-Megantic.
Canadian National said it has improved the training of 100 track inspectors following the Ontario derailment and expanded the use of digital imaging and other technology to identify track wear and fatigue, adding it has budgeted C$2.5 billion this year to enhance safety.
The Canadian government did not offer a response to the TSB recommendations.
| 