Pipeline nods set to pinch crude-by-rail

CAPACITY

those numbers, with CP running all of 35,000 carloads of crude in 2016, while National Energy Board data up to November shows that Canada-wide there was an average of 89,000 barrels a day of crude-by-rail shipments last year, a 55-per-cent drop from 2014.

The drop in rail shipments came despite a significant increase in capacity built to match that expected demand, with CAPP estimating Western Canada rail loading capacity of about 754,000 barrels a day.

“When everyone got concerned that we were going to run out of pipeline space, every Tom, Dick, and Harry came running up to Canada to build a crude-on-rail terminal,” said John Zahary, CEO of crude rail operator Altex Energy.

Zahary doubts capacity is nearly as high as CAPP’s estimate, with several announced projects not actually carried through to completion, but he still doesn’t expect to see more built any time soon.

“A lot of guys built them without contracts and they lost their shirt. So I don’t know that in a relatively short period of time that somebody would want to lose their shirt twice,” he said.

The safety of crude-byrail has also been an issue for further growth in rail shipping, with the deadly Lac-Mégantic train derailment in 2013 showing just how dangerous it can be. But Zahary says the heavy crude, and especially bitumen, produced in Canada is much safer to ship than the light oil produced out of North Dakota’s Bakken oil fields.

And while the long-term future is in question, rising oil prices and a continued short-term crunch on pipeline capacity means there will continue to be shipment spikes, said Chuck Clowdis, managing director of transportation for IHS Economics.

“It’s going to come back,” he said.

Already there have been significant swings in shipments, with NEB data showing November had an average of about 172,000 barrels a day of oil transported on rail. That’s not far off the 179,000 record in September, 2014, and up from 43,000 barrels a day last July.

And if the pipelines are delayed past the expected 2019 start date, then crudeby-rail could instead come roaring back.

An IHS report released in January said that if pipelines are delayed and the industry can’t find alternatives, crude-by-rail volumes could reach 800,000 barrels a day by 2020. Although observers say crude-by rail could diminish in future, an IHS report released in January said if pipelines are delayed and the industry can’t find alternatives, crude-by-rail volumes could reach 800,000 barrels a day by 2020.