Crude-by-rail scheme has farm­ers on edge

An­a­lyst thinks rail­ways can cope with both grain and oil ex­ports

Edmonton Journal - - CITY - AMANDA STEPHEN­SON astephen­[email protected]­media.com twit­ter.com/Aman­daMsteph

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.”

JIM WELLS

The Al­berta gov­ern­ment has al­ready started ne­go­ti­a­tions to buy up to 7,000 tanker cars and is ex­pected to an­nounce a deal within weeks.

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