PRODUCTIVITY HINGES ON RAIL CAPACITY
Province’s exports put increasing demand on service
In a landlocked province, rail is key to getting product to market. Saskatchewan’s miners, oil producers and farmers are looking for a way to increase rail access.
“WE’RE FULLY OF THE OPINION THAT OIL SHOULD BE SHIPPED IN PIPELINES.” STEVE MCLELLAN, CEO, THE SASKATCHEWAN CHAMBER OF COMMERCE
Saskatchewan’s annual export value has pulled even with British Columbia’s and even outpaces Alberta’s oilpatch on a per-capita basis.
In 2013, Saskatchewan derived $32 billion, or 40 per cent, of its gross domestic product, from international exports and nearly half of it moved at least partway to market by rail, according to a new study by the Conference Board of Canada.
Those numbers might have been even bigger if the province’s miners, farmers and oil producers had been able to gain better access to needed rail capacity, says Steve McLellan, CEO of the Saskatchewan Chamber of Commerce, which commissioned the Conference Board report.
The provincial government’s Plan for Growth calls for exports to reach $59 billion by 2020. But the Conference Board study says railcapacity issues could put a multi-billion-dollar crimp in export revenue flows.
“We’re the most landlocked province in the country,” McLellan says, with the longest haul to the Great Lakes and the Pacific Ocean. This makes Saskatchewan’s economy uniquely dependent on rail service and issues of railcar capacity, locomotive availability, unit train scheduling and terminal space at ports.
Needed investments by rail companies, commodity producers and potential third-party investors are further complicated by the inherent volatility of commodity markets, McLellan confirms.
Potash producers have purchased hopper cars and oil companies have bought tanker cars, but even when rolling stock is available, unit trains of up to 130 cars often wait for available position on rail lines, he says.
Between 2013 and 2014, Saskatchewan’s rail movements of potash increased 21.4 per cent from 12.6 million tonnes per year to 15.3 million tonnes per year. Uranium, which has traditionally been trucked to market, increased rail movements from nearly nothing to 5,600 tonnes per year, a small volume with an eye-popping value of $600 million. And a record harvest pushed agricultural shipments of all kinds up 32 per cent to 21.8 million tonnes. But in the same year, stalled pipeline projects pushed oil-by-rail shipments up more than 1,000 per cent to 20 million tonnes per year.
“We’re fully of the opinion that oil should be shipped in pipelines,” McLellan says, adding that it’s safer, costs less and frees up rail space.
But even if pipelines were suddenly approved and built, Saskatchewan would need more hopper cars for grain and minerals and more unit trains. He says he’s doubtful the pipeline issue can be solved by waiting for governments to create a national energy strategy. Rather, he says the oil industry needs to craft an accord with public opinion on environment and climate change issues.
Chad Fleck, CEO of the Saskatchewan Trade and Export Partnership (STEP), says a rapidly growing demand for rail capacity is a good problem to have — but it’s still a big problem.
“We’ve got what the world wants — food, fuel and fertilizer. But we’re extremely export dependent. You can’t overstate the importance of that.”
In particular, Fleck says Saskatchewan needs increased rail access to the West Coast so that potash, grain and uranium can reach customers in China and India, whose combined populations are 33 per cent of the world total.
He calls the events of 2013 a “perfect storm” in which a record harvest combined with mammoth gains in oilby-rail shipments and big increases in potash handling. But he says the agricultural record of 2013 was followed by the second-largest harvest on record in 2014 and he sees no sign of a quick resolution to oil pipeline constraints.
“We’re in a new normal,” says Fleck, and rail capacity has to be increased to handle it.
“There’s no magic bullet,” he says. “It’s a multi-layered challenge.”
All industries and all four western provinces need to work together on solutions that will reduce risks of transportation bottlenecks, he says, adding that eliminating the slowdowns will help attract investment.
Saskatchewan is on a roll, Fleck adds. The provincial economy is more diverse than Alberta’s and the population is growing in response to strong job creation.
“There are more good jobs for good people than there are good people for those jobs,” he says. “People don’t fly over us to get to Calgary anymore.”