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Future of crude-by-rail iffy in Canada
Gary Park for Petroleum News
As squabbling drags on over the future of pipelines to move crude in Canada, the case for using rail is quietly growing, at the same time that its longer-term outlook is clouded in uncertainty.
The International Energy Association forecast in spring that Canada’s crude-by-rail, or CBR, exports could increase to 250,000 barrels per day this year and at least 390,000 bpd in 2019.
The Canadian Association of Petroleum Producers estimates there is already a total of 754,000 bpd in rail loading capacity in Western Canada, including 210,000 bpd at the Kinder Morgan/Imperial Oil co-owned terminal in Edmonton.
Canada’s National Energy Board reported that CBR exports to the United States averaged 134,100 bpd in February (the most recent data available), well short of the December 2014 record of 175,600 bpd.
Patrick DeRochie, climate and energy program manager at Environmental Defense, is skeptical about the IEA’s projections, suggesting that the incremental increase in CBR numbers will likely amount to only a few tens of thousands of barrels “which is nowhere near the capacity that pipelines would introduce to the system.”
Canada’s two freight rail companies, Canadian National and Canadian Pacific, are under far greater pressure to overcome critical delays in their grain shipments that are ultimately their bread and butter operations.
Lack of short-term contracts Both have spurned calls from the oil industry to offer short-term contracts to ship more crude, with Canadian Pacific Chief Executive Officer Keith Creel telling investors this year that “we understand crude is only going to be here for a limited period of time. We are looking for strategic partners with long-term objectives that allow us to have a more stable book of business.”
Few oil producers are prepared to engage in long-term business deals with the rail companies so long as rail adds C$3 to C$4 per barrel to their costs.
However, Cenovus Energy, one of the top three oil sands producers, is talking with the railroads about moving more product in the near term to help relieve the stranded crude, said the company’s CEO Alex Pourbaix.
He said it is not that the rail companies “don’t want to move the product ... it’s really been a function for them of capacity and having the power and locomotives to do it.”
But Pourbaix expects the railroads to offer a “solution in fairly short order.”
Canadian Pacific does little to bolster that hope, noting on its website that the surge in CBR demand came eight to 10 months earlier than anticipated and that, in a few years, newly approved pipelines will carry the crude that now moves by rail.
“It is difficult to justify investing in long-life assets like rail and locomotives based on short-term demand,” the company said.
Canadian National’s interim CEO Jean-Jacques Ruel said his company now requires minimum 12-month shipping agreements from oil producers, which he said, “get married to pipelines, but only date railroads.”
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