Crude-by-rail hike has farmers on edge
Analyst thinks railways can cope with both grain and oil exports
Premier Rachel Notley pressed Prime Minister Justin Trudeau once again on Friday to provide support for her plan to purchase rail cars to increase the amount of oil being shipped out of Alberta.
But Trudeau did not make any firm commitments, telling reporters at the first ministers’ meeting in Montreal that the federal government heard a “number of proposals” to address Alberta’s oil price differential crisis and will be considering everything.
Alberta has proposed purchasing as many as 7,000 rail cars and 80 locomotives and is willing to go it alone if it doesn’t get federal help. The NDP government has already begun negotiating the acquisition with suppliers and has said it expects to announce a deal within weeks.
But while analysts say increasing crude-by-rail in the short term is “manageable,” farm groups argue the provincial government has failed to explain how adding a proposed 120,000 barrels of oil a day to an already congested rail system will not have a negative effect on their ability to get their crops to market.
“We’ve had absolutely no communication from the provincial government on this issue,” said Tom Steve, general manager of the Alberta wheat and barley commissions. “We have more questions than answers about the practicality of putting additional strain on the rail transportation system, because it in fact does have limited capacity.”
Twice in the past five years, higher-than-expected crop volumes (combined with cold weather that forced the railways to run shorter trains) created a grain shipping backlog that left crops stranded in bins and elevators across the Prairies and led to billions of dollars in lost sales. At the same time, crude-by-rail exports have been growing — hitting an all-time high of 270,000 barrels per day ( bpd) in September, approximately double the amount from a year earlier.
“The growth pressures in every dimension are real,” said Gord Lovegrove, associate professor of civil engineering at the University of British Columbia.
Notley’s proposal, which would see the new oil tanker cars come online in late 2019, will mean increased pressure on the system.
However, both Canadian Pacific Railway Ltd. and Canadian National Railway Co. have made significant capital investments this year, with Calgary-based CP announcing in June that it would spend more than a half-billion dollars on new, high-capacity grain hopper cars, as well as investing in staff and locomotives to serve the entire supply chain. Montrealbased CN, meanwhile, had a record $3.4 billion capital program for 2018, which included $320 million worth of spending on new double track and yard expansions in Alberta.
“We have been able to take on more traffic from different commodity sectors based on contracts with our customers, including crude oil shippers,” said CN spokesman Jonathan Abecassis in an email, adding he cannot comment on the specifics or the feasibility of Notley’s plan until the government shares a detailed proposal with the railway.
Tony Hatch — a New York-based transportation analyst — said he believes the railways can handle the increased volume.
Last May, the federal government passed the Transportation Modernization Act, aimed at helping farmers get their crops to market. The legislation establishes reciprocal penalties for unmet commitments between railways and their customers and also permits the Canadian Transportation Agency to launch formal investigations into supply chain issues.
“I don’t think the railroads would take the (crude) business on if they couldn’t handle it,” Hatch said. “I think the farmers are right to keep their eye on it, but I don’t think they have to be too concerned.”
However, Hatch said if a pipeline to ship oil is not built within the next few years, the railways will need to ramp up to meet the growing demand. Right now, the railways still view crude-by-rail as a temporary business that will dry up within three to five years, he said.
“If you need to do more (than 120,000 barrels a day), there’s going to have to be more capacity added,” he said. “The railroads have not planned for five years from now having a huge amount of crude-by-rail.”
Doug Finnson — president of the Teamsters Canada Rail Conference, the union that represents railway workers at both CN and CP — said it is possible that the new oil trains could be in conflict with grain trains, depending on the time of year the oil is being shipped.
“When the grain run gets crazy after harvest, depending on what the crop is like, potentially you could see grain and oil butting heads over track space,” Finnson said. “But if it’s an orderly, methodical way that the oil is going out, then between two railroads that’s probably manageable, even with the grain rush.”
However, Finnson said finding and training more staff will become a challenge if crude-by-rail demands increase even further.
“Even without oil, we need more qualified workers,” he said. “If this (crude-by-rail) is going to be a long-term development, we do have to pay particular attention to getting new people trained. And that takes time.”