Canadian Railroads > Should CP CN create oil conduits?

Canadian oil from Alberta (Western Canada Select) is selling at a near historic discount to the U.S. and world oil benchmarks. In practical terms, Canada is leaving multiple billions of dollars on the table.

Canadians have blocked pipeline expansions, and Canadian railroads have pulled a lot of what they thought was excess track. Now, both Canadian majors are part of the problem.

How about one way running? Loads out of northern Alberta on one road, empties back on the other? Fewer meets of hundred car trains, more fluid running. Next month they change positions...

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Isn't it more a matter that the heavy oil from Alberta is not in demand when there is so much lighter, easier to refine, crude available?

GTD

cn6218 Wrote:
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> Isn't it more a matter that the heavy oil from
> Alberta is not in demand when there is so much
> lighter, easier to refine, crude available?
>
> GTD
Partly, but the WCS discount reflects that not all refineries can handle it. Right now, Canadian crude is filling a Venezuelan shortfall in Gulf refineries.

Canada ships about 3.5 million barrels of crude to the US daily. Without pipes or more rail capacity, that's probably a soft ceiling.

Posted from Android

Track is less of an issue than locomotive and crew capacity. Since these are unit trains of oil, which require no switching and move from terminal to destination or interchange, power and crew availability is the biggest issue for both railroads. And that's why they are bringing oil on only under contracts that guarantee volume over the life of the deal.

Also, both CN and CP have been adding track capacity.

In the case of CN, they have added 188 longer/new sidings systemwide since 2000, with much of that growth in Western Canada and on the energy-related feeder lines in Alberta. That figure is not counting this year's capacity expansions in Western Canada and between Winnipeg and Chicago, which added 60-plus miles of double-track and about a dozen new or extended sidings.

CP, on the other hand, has added or extended something like 50-plus sidings since 2012 as well as CTC between the Canadian border and Glenwood, Minnesota.

The other issue here is that crude is short-term business. They don't want to upset grain shippers, who have been around forever, by bringing on too much oil traffic and prompting grain customer complaints to regulators in Ottawa. That's a huge deal in Canada.

Bottom line here is that as soon as pipelines are expanded and built, the Canadian railroads can kiss oil traffic goodbye.


Lackawanna484 Wrote:

> Canadians have blocked pipeline expansions, and
> Canadian railroads have pulled a lot of what they
> thought was excess track. Now, both Canadian
> majors are part of the problem.
 

Thanks for all the info.

The pipeline construction south, east, and west has had a number of hurdles, so the railroads may have that oil business for a while.

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IIRC, shipment of crude by rail added $ 8 per barrel (42 gallons) to the price of Balkan crude.

So you'd have to add that to the relative scarcity of refineries able to profitably deal with the heavy, sour crude we are talking about.

Brian

choodude Wrote:
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> IIRC, shipment of crude by rail added $ 8 per
> barrel (42 gallons) to the price of Balkan crude.
>
> So you'd have to add that to the relative scarcity
> of refineries able to profitably deal with the
> heavy, sour crude we are talking about.
>
> Brian

At one point, the rail fee for Bakken to Linden NJ and Philly area oil by rail was $13 a barrel. I know it came down after the troubles.

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Wall Street Journal reports on the problems in Canadian oil exports.

https://www.wsj.com/articles/canadas-crude-problem-lots-of-oil-with-nowhere-to-go-1541865600?mod=cx_picks&cx_navSource=cx_picks&cx_tag=undefined&cx_artPos=1#cxrecs_s

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The CN has been doing work on the Grimsby and Stamford subs here in Ontario with private contractors.
I talked to one of them and they suggested even more work next spring in preparation for a huge increase in oil trains. These two subs are underutilized right now and a good route to Buffalo and refineries east and south.

Mike Bannon
St Catharines, ON

I realize that a traditional idea of subsidy is cash on the barrel head.  OTOH, being allowed to leave your toxic waste behind for others do deal with is quite a "market distortion."  Privatize the profits, socialize the losses.

  https://www.thestar.com/news/investigations/2018/11/23/oilsands-waste-is-collected-in-sprawling-toxic-ponds-to-clean-them-up-oil-companies-plan-to-pour-water-on-them.html

Brian

algoma11 Wrote:
-------------------------------------------------------
> The CN has been doing work on the Grimsby and
> Stamford subs here in Ontario with private
> contractors.
> I talked to one of them and they suggested even
> more work next spring in preparation for a huge
> increase in oil trains. These two subs are
> underutilized right now and a good route to
> Buffalo and refineries east and south.

Thanks.

It would be interesting to map out the destinations for Canadian and Bakken crude within the US.  That Ontario routing would work very well for crude bound toward NJ, DE, Philly area, and with a backtrack, to Toledo.  Wouldn't be much help for oil bound to points along the Mississippi River corridor, though.

I wonder how much benefit CP and CN would derive if they ran outbound Alberta oil via CP for six months, with empties returning via CN. Then flipped for six months with loads via CN.  Making the two railroads more directional running (for oil), as they are in the west for most products, would seem to improve efficiency. Fewer meets with oncoming trains.

Interesting opinion piece about the beginnings of the current low oil sand crude prices:

https://thetyee.ca/Analysis/2018/11/23/Alberta-Policy-Problems/

Hopefully the railroads can make some money from the situation.

Brian

The spread between the cost to produce oil, and the market price can be huge. When the market price of oil drops, drillers and countries with high costs are in trouble.

That's an issue with Venezuela right now.

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