Industry sees no slowdown in train traffic
It may not be exactly business as usual for moving oil by rail since Lac-Mégantic but the catastrophic crash appears to be doing little to slow down trains carrying crude.
Even as Transport Canada puts out emergency directives to increase railway safety following the deadly derailment in Quebec this month, Canada’s big railroads and oil producers committed to moving more oil by rail as they released second-quarter results.
Canadian Pacific Railway has had four derailments of trains carrying oil or petroleum products this year but the Calgarybased company reported a record second-quarter profit Wednesday driven in large part by growing long-haul oil transport. CN Rail cited increased oil transport as key to its Q2 profits Monday.
Those profits predate the Lac-Mégantic derailment that has had worldwide media coverage, prompted a recall of vacationing members of Parliament on the transport committee and intensified the scrutiny on shipping oil by rail. With pipeline projects stalled by regulatory delays, oil producers have increasingly turned to rail to get crude to refineries. Industry statistics show oil by rail shipments in Canada have gone from about 6,000 carloads in 2009 to about 14,000 this year.
Oil transport will “form a larger part” of CP’s business going forward, Jane O’Hagan, the chief marketing officer for the railway, said on a call with analysts.
CP has said it expects to transport 70,000 carloads of oil — each carries about 600 barrels — this year and double that by 2015.
“Crude by rail remains a complementary and important supply chain option for producers, refiners and trans-loaders looking to benefit from the flexibility moving any type of crude to any North American market,” O’Hagan said, noting CP is increasing its loading facilities in Western Canada and delivery points across the continent.
CN also said oil by rail isn’t slowing down despite the issues raised by the July 6 crash of a runaway train owned by Montreal, Maine & Atlantic Railroad that killed about 50 people. Both CP and CN have said they’ve enhanced safety measures since then.
Canada produces more than 3.2 million barrels of crude oil a day and the vast majority is still moved via pipeline. Statistics Canada said about 175,000 barrels moved on rail every day in April.
National Bank has said Canadian railways shipped 86,000 carloads of petroleum products in the second quarter — up almost 18 per cent from the same quarter in 2012 — compared to almost 154,000 carloads of chemicals in the quarter. As the bank noted, “any movement to limit the shipping of crude by rail would also have to consider limiting the movement of certain chemicals by rail.”
It wasn’t only railroads backing the use of almost two-kilometre-long unit trains to haul oil despite the Quebec tragedy and record flooding in Alberta that have raised concerns over derailments, rail car design and the routing of lines through populated areas.
“We continue to believe for Cenovus that we can safely move crude by rail,” said Brian Ferguson, chief executive of Calgary-based Cenovus Energy, which expects to increase the amount of crude it moves on rail to 30,000 barrels a day next year. It doesn’t stop there. The port authority in Vancouver, Wash., approved a lease for a Columbia River terminal that will take oil by rail from North Dakota and ship it to West Coast refineries. The project must still be reviewed by the state’s Energy Facility Site Evaluation Council and go to the governor for a final decision.
Despite opposition from local neighbourhood and environmental groups — demonstrators at Monday’s hearing held banners that proclaimed “In Solidarity with Lac-Megantic” in English and French — over safety and ecological risks, port commissioners approved the deal citing the economic benefits.
The Association of American Railroads has said Class 1 railroads, including CP and CN, in the U.S. moved 9,500 carloads of oil in 2008 and more than 10 times that number — more than 97,000 carloads — in the first quarter of 2013 alone.
While Transport Canada has focused on increased safety in response to LacMegantic, Greenpeace Canada has said federal government memos earlier this year obtained through access to information indicate the agency had “no major safety concerns with the increased oil on rail capacity in Canada.”
On Wednesday, CP CEO Hunter Harrison said it is working with railways and regulators to determine “what, if any” additional safety regulations are required. Calgary mayor Naheed Nenshi criticized CP’s safety record after the derailment of a CP train and partial bridge collapse in the city during the flooding in late June. CP had other derailments in Alberta, Ontario and Minnesota this year.
Harrison, the former head of CN, who took over CP in June 2012, said the floods produced 40 washouts in four days and effectively closed CP’s rail system west of Calgary until crews got the lines repaired and back in service days later. “I have never seen anything like it in my 50 years of railroading,” said Harrison, who called Lac-Megantic “a solemn reminder of the inherent danger of this business.”
The pace of growth has moderated through the spring and summer but CP and CN said it isn’t linked to safety concerns but a seasonal narrowing of price differentials for West Texas Intermediate in the midcontinent compared with Brent on the coasts.
As differentials widen in the fall, expect more cars loaded with oil on the rails.
Come hell or high water, it appears there is little that will derail the growth projections for railroads and it simply reinforces the adage that one way or another oil will always find a way to market.