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Rail sector faces reversal in Canada
GARY PARK For Petroleum News
Three years of mostly unchanged growth in the use of rail to move crude have shown their first unmistakable reversal in shipments across Canada and into the United States.
Canadian Pacific Railway, the country’s second largest transporter, disclosed it had cut prices for hauling crude to slow volume declines, while Canadian National Railway posted significant decreases in its crude business.
CN reported that although revenues from carrying petroleum and chemicals were up to C$609 million for the third quarter from C$594 million a year earlier, revenues dipped to C$12.45 million from C$13.58 million, while carloads slipped 4 percent to 161,000.
The trend was even worse for CP, which said crude volumes and revenue fell by about 20 percent for the three months ended September 30.
That was despite what Chief Operating Officer Keith Creel called “strategic pricing” to overcome poor returns that shippers of Western Canadian oil have faced since crude prices started to spiral down a year ago.
“Obviously, in a more robust environment we’d be extracting a greater rate of return on the business, but rest assured we’re covering our cost of capital and we’re making money,” he told analysts.
“We’re not doing this for practice. But it’s revenue we wouldn’t see otherwise on the rail, so I think it’s the right thing to do.”
Crude to Lower 48 slumps The turnaround in crude-by-rail returns is reflected in the latest statistics released by Canada’s National Energy Board covering the period to June 30.
They showed crude exports to the United States slumped to 83,605 barrels per day in the second quarter from 119,755 bpd in the January-March period and barely half the volumes for the four quarters of 2014, reaching an all-time peak of 165,998 bpd in the third quarter.
Total volumes for the second quarter were 7.6 million barrels compared with 15.27 million barrels in the third quarter of 2014.
But rail is not alone in coping with shipping declines.
Enbridge’s Spearhead pipeline from the Alberta oil sands to the crude hub at Cushing, Oklahoma, has reported shipping nominations of only 155,000 bpd for December, almost 40,000 bpd for the system’s capacity from Flanagan, Illinois, to Cushing - the first time in more than two years that shippers haven’t filled the line, which once received requests for 10 times more capacity than is available.
Spearhead could face another pullback when Enbridge opens its Line 9 system that will offer 300,000 bpd of space to producers in Alberta and the North Dakota Bakken to Quebec’s two refineries - Valero’s 265,000 bpd facility and Suncor Energy’s 137,000 bpd operation.
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