Oil rebound faces threat from potential CP Rail strike
CALGARY/MONTREAL A potential strike by Canadian Pacific Railway Ltd. workers threatens to derail a recovery in Alberta’s beaten-down heavy oil prices.
On Tuesday, the Teamsters Canada Rail Conference and the International Brotherhood of Electrical Workers each gave CP Rail a 72hour strike notice informing the company of their plans to strike at 12:01 a.m. ET on Saturday.
A strike would come at a critical time for Western Canadian oil producers. The heavy crude they pump is selling for US$16.60 a barrel below the U.S. benchmark, from a discount of more than US$30 in February. Oil flows out of Alberta to the U.S. have improved after pipeline and rail bottlenecks earlier in the year stymied exports.
“Any reduction in rail capacity would not be good,” said Kevin Birn, a director at IHS Energy in Calgary. “A rail strike would stretch or constrain CP, one of the major rail lines, at a time when it’s most needed.”
New heavy oil production from Suncor Energy Inc.’s Fort Hills mine, combined with reduced pressure on the TransCanada Corp.’s Keystone pipeline after a November spill, filled remaining export lines to capacity this year. This forced producers to ship by rail as an alternative. But the rail companies were also constrained by heavy demand for grain shipments and cold winter weather that slowed trains.
The maintenance shutdowns of oilsands upgraders, including Syncrude Canada Ltd.’s plant near Fort McMurray, combined with rail lines moving “a little more” crude, have helped alleviate the logjam. But the discount could widen back out to between US$17 and US$19 a barrel once Syncrude resumes operation, Birn said. That assumes that a rail strike doesn’t happen.
CP is the second-biggest rail shipper in Canada after Canadian National Railway Inc. The carrier shipped 3,488 carloads of petroleum products the week ended April 14, up 28 per cent from a year earlier, company data show.
“Serving a strike notice is part of the bargaining process that unions must follow if they want to be able to strike,” Canadian Pacific chief executive Keith Creel said Wednesday in a statement. “We remain committed to achieving a win-win solution and urge the two unions to work closely with us and the federal mediators to achieve a positive outcome as soon as possible in the hours leading up to the deadline.”
“The oil industry is concerned about any further impact on the availability of rail capacity given the tight pipeline situation and is monitoring these new market developments as they unfold,” Chelsie Klassen, spokeswoman for the Canadian Association of Petroleum Producers, said in an email.