CN Rail vies for crude-haul­ing crown

Ship­ments next year ex­pected to sur­pass record of 13,000 car­loads of oil set in 2014

Calgary Herald - - FINANCIAL POST - FRED­ERIC TOMESCO

Cana­dian Na­tional Rail­way Co. ex­pects to set a record for crude-byrail ship­ments next year as it vies with Cana­dian Pa­cific Rail­way Ltd. to dom­i­nate a boom­ing mar­ket for the al­ter­na­tive to pipe­lines.

Crude oil ship­ments next year will prob­a­bly sur­pass the 130,000-car­load mark set in 2014, Chief Ex­ec­u­tive Of­fi­cer Jean-Jac­ques Ruest said Wednes­day af­ter the com­pany re­ported third-quar­ter earn­ings. That would al­low the car­rier to vault ahead of CP Rail, whose CEO said last week he’s aim­ing to reach as many as 120,000 car­loads.

“2019 has the mak­ings of be­ing a record year for crude by rail,” Ruest said in a tele­phone in­ter­view from Mon­treal. “From a vol­ume point of view, based on the vis­i­bil­ity we have from the peo­ple who are ship­ping and buy­ing crude, it looks to us like we will be the big­gest Cana­dian car­rier next year.”

The record mark would amount to about 250,000 bar­rels a day, more than the pro­duc­tion ca­pac­ity of OPEC mem­ber Gabon, based on an aver­age tank-car vol­ume of 700 bar­rels.

Cana­dian Na­tional, the coun­try’s big­gest rail­road, is about 80 per cent through a ca­pac­ity ex­pan­sion that’s part of a record $3.5 bil­lion cap­i­tal spend­ing pro­gram for 2018 aimed at fix­ing bot­tle­necks and ser­vice is­sues. The com­pany is fo­cus­ing most of the in­vest­ments, such as dou­ble tracks, on its main line be­tween Ed­mon­ton, Al­berta, and Win­nipeg, Man­i­toba.

“This is the heart of our net­work,” Ruest said. “We’re adding re­silience. A lot of the busi­ness goes through that line,” he said, cit­ing key com­modi­ties such as grain, oil and potash.

A short­age of pipe­line space to ship Cana­dian oil to U.S. re­finer­ies has led prices to plunge to about US$20 a bar­rel, with the dis­count to the U.S. bench­mark reach­ing US$50 a bar­rel ear­lier this month, the most on record in Bloomberg data stretch­ing back to 2008.

Crude ship­ments in the fourth quar­ter are poised to ex­ceed those of the third quar­ter, Ruest said in the in­ter­view, de­clin­ing to pro­vide spe­cific fig­ures.

“In the sum­mer­time we did not have enough ca­pac­ity to meet the de­mand,” Ruest said.

“This is one of the rea­sons why we didn’t move as much crude as some peo­ple thought. Our ca­pac­ity is com­ing back, and with the con­tracts we have signed, we think at some point we will be a big­ger rail­road” than Cana­dian Pa­cific, he said.

Growth in Al­berta crude-by-rail ship­ments could add more than 10 cents a share to Cana­dian Na­tional’s earn­ings next year as con­ges­tion eases, Al­li­son Landry, a Credit Suisse an­a­lyst, said Mon­day in a re­port. Cana­dian Na­tional is fore­cast to earn $6.26 a share next year, ac­cord­ing to the aver­age es­ti­mate in a Bloomberg sur­vey of an­a­lysts, while this year’s es­ti­mate calls for ad­justed profit of $5.45.

Oil and chem­i­cals rev­enue jumped about 25 per cent to $665 mil­lion in the quar­ter, Cana­dian Na­tional said Tues­day. In­ter­modal, or con­tainer-based, ship­ments were the com­pany’s big­gest line of busi­ness, con­tribut­ing sales of $897 mil­lion in the third quar­ter.

When car­ry­ing crude, Cana­dian Na­tional sup­plies lo­co­mo­tives, train crews and the rail net­work. Oil pro­duc­ers sup­ply the tank cars.

From a vol­ume point of view ... it looks to us like we will be the big­gest Cana­dian car­rier next year.

HO/CANA­DIAN NA­TIONAL RAIL­WAY COM­PANY

Cana­dian Na­tional Rail­way Co., the coun­try’s big­gest rail­road, is about 80 per cent through a ca­pac­ity ex­pan­sion that’s part of a cap­i­tal spend­ing pro­gram for 2018.

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