Canadian Railroads > Alberta oil production cut - impact on railroads?

Alberta PM Notley has ordered a 325,000 barrels per day cut on oil production in the province. The cut is apparently the result of severe backlogs in shipping out oil, and a steep discount on the price of Western Canada Select oil.  It will apparently hit the oilsands business hardest.

Good for railroads, or bad?  Both CN and CP seem to be at capacity. Pipelines are fully subscribed, and pipeline construction seems blocked for a while, at least.  The announced cut equals about 450 daily oil tanker loadings.

FWIW, as an outsider, it seems like a bad idea to pump a resource like oil, and sell it for a steeply discounted price. Leave it in the ground, and let the market catch up.

Depends on how much money you invested to pump it out.  Some like to get money back on investments.
RB

up833 Wrote:
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> Depends on how much money you invested to pump it
> out.  Some like to get money back on
> investments.
> RB

Yes.  Pumping more crude as world prices are dropping is not a good idea.  It's may be the PM's idea that the E&P folks won't voluntaily cut back, so she'll do it for them.

I would think PM"s are not good market people along with the fact the oil is not theirs.   Or is it?.



Edited 1 time(s). Last edit at 12/10/18 13:41 by tomstp.

A liitle correction if I may.  Premier Notley is not the PM (Prime Minister), just the Premier. 

4489 Wrote:
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> A liitle correction if I may.  Premier Notley is
> not the PM (Prime Minister), just the Premier. 

Forgive them, they're Yanks.

Please note the following column in Railway Age by David Thomas:

• December 04, 2018
• Class I, Freight

All she wants for Christmas are her two tank trainsWritten by David Thomas, Canadian Contributing Editor https://www.railwayage.com/wp-content/uploads/2018/12/2015-02-17-14.48.50-.jpgWestbound CP loaded oil train at Bellevue, southwestern Alberta. David Thomas photo.Not for Rachel Notley are Festivus, Yule and other neo-pagan solstice celebrations for the politically minded. No, the Alberta Premier clings to Christmas tradition, or more accurately the toy catalog of yore, with its yummy pages of pointlessly looping Lionel trains.Notley is whining for not just one train, but a giga-set of 80 locomotives and 7,000 tank cars to shift Alberta’s low-grade oil substitute from the boreal forest to the Gulf of Mexico and the Pacific Coast.The whimpering started early in the year as Notley griped that she was not getting enough royalty vigorish for the province’s barrel-bottom sludge known as bitumen. More familiar as tar, it’s currently worth less than a lump of coal in a Christmas stocking.As Black Friday and then Cyber Monday passed without a delivery from Amazon, Notley’s sobbings escalated into a screaming demand-letter to Sanada, Canada’s cash-machine federal government. Sanada, insists Notley, should just give her the trains, right now, and forget that trope about being naughty or nice.For, yes Virginia, there is a Sanada, and s/he was not feeling very jolly at all after Notley petulantly tired of her previous toy—the Trans Mountain pipeline to the West Coast that Sanada had bought for her birthday just last spring. True, it was a rather clapped-out pipeline retrieved from the rubbish bin behind the Salvation Army store, but Notley had stomped her feet for it and Sanada gave in, very foolishly as it turned out.Just hours before Sanada’s elf-in-chief, Canadian Prime Minister Justin Trudeau, signed off on the deal, the country’s supreme court yanked authorization for the pipeline’s twining between Alberta and the Pacific coast. Trudeau had been feckless enough to commit irrevocably to the terms of the deal in advance of the court ruling.The profligate Prime Minister rashly gambled and instantly lost $3.3 billion of taxpayer debt on a flagrantly flawed approval issued by his predecessor, the hapless Stephen Harper. (Harper’s previous fiasco was the equally slapdash and court-quashed Keystone Pipeline.) Harper’s Conservative government, the court ruled, had conducted willfully bogus assessments of First Nations’ rights and environmental risks associated with Trans Mountain—precisely the same flaws that killed Keystone in U.S. courts.Like Keystone, the mooted Trans Mountain expansion is now as real as Old Saint Nick and will remain so unless Ottawa re-starts and ultimately prevails in the multi-year approval process, against the opposition of British Columbia and the First Nations people who live along the route. (British Columbia indigenous peoples never did surrender their legal land rights to the British colonial power that preceded Canada’s independence in 1982.) The pipeline’s former owners, Kinder Morgan, can be heard laughing all the way back to Texas, to the jingle of Canadian taxpayer cash.As autumn leaves gave way to Old Man Winter’s song, Notley went right to Sanada’s workshop in Ottawa to deliver her Christmas wish list: enough new locomotives and cars to move two unit trains per day of Alberta’s proto-oil from the northern boreal forest to the land of make-believe, where refineries made of gingerbread turn tar into treacle.Sanada’s response was cool, so on Dec. 2, Notley announced she would just hold her breath until she got her way: If Sanada wouldn’t give her the trains, Notley would choke off oil production by nearly 10% to slim down Alberta’s tar-bloated belly.If Sanada doesn’t succumb to her demands by Christmas, said Notley, she will buy the trains herself, out of her own extravagant allowance. (Alberta remains Canada’s lowest-taxed economy, without even a modest retail sales levy.) Rail industry sources estimate the cost of 7,000 tank cars alone exceeds $1 billion, while 80 modern locomotives would be another $250 million or so.“To have a government intervene in a free market, which will create winners and losers, is just such a big step from the past 30 years of a deregulated marketplace,” noted Richard Masson, an executive fellow at the University of Calgary School of Public Policy.The oil lobby, on the other hand, thinks direct government intervention in the rail business is a very good thing (and it is, for the oil companies). “We do need to see rail scale up, as it’s the fastest option we have, “ Tim McMillan, CEO of the Canadian Association of Petroleum Producers said in October. McMillan even posited that Ottawa’s purchase of the Trans Mountain pipeline is a fine model for intervention in the rail industry.Lest the heads of locomotive and car builders see only visions of dancing sugar-plumbs in Alberta’s entry into the railroad business, let’s look at the ominous blank line in Notley’s wish list. For, no Virginia, Notley did not include any new rail lines in her letter to Sanada. Track space will be commandeered from the railroads’ already over-crowded layout.Rail regulation is intensely political, and Canada’s federal government already requires grain to be prioritized over other commodities, often in government-owned hoppers.Ottawa will be pushed hard to highball four daily government-owned oil trains (two up, two down) over other traffic, including potash from Saskatchewan, grain from Manitoba, lumber from British Columbia and boxes from China filled with things for good boys and girls.https://www.railwayage.com/wp-content/uploads/2018/12/David-Thomas-WEBSITE.jpgContributing Editor David Thomas is a reporter who has covered government and society since graduating from Ottawa’s Carleton University with degrees in political science and journalism. He has written for National Geographic, Maclean’s, The Globe and Mail, The Gazette, and The Canadian Press news agency from postings in Ottawa, Montreal, Quebec City, Toronto and London, England. “Railroading has been a personal fascination since a childhood timed fortunately enough to witness the golden years of steam on the late-to-dieselize Canadian National and Canadian Pacific,” he says.

PHall Wrote:
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> 4489 Wrote:
> --------------------------------------------------
> -----
> > A liitle correction if I may.  Premier Notley
> is
> > not the PM (Prime Minister), just the
> Premier. 
>
> Forgive them, they're Yanks.

I didn't realize French was spoken in Alberta.

Posted from Android

Lackawanna484 Wrote:
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> PHall Wrote:
> --------------------------------------------------
> -----
> > 4489 Wrote:
> >
> --------------------------------------------------
>
> > -----
> > > A little correction if I may.  Premier
> Notley
> > is
> > > not the PM (Prime Minister), just the
> > Premier. 
> >
> > Forgive them, they're Yanks.
>
> I didn't realize French was spoken in Alberta.
>
> Posted from Android

What in the world does French have to do with it.  BTW there are many French speaking communities in all Canadian provinces

That column by David Thomas is an opinion piece that is very anti oil slanted. Right now a lot of the Western Canadian Select crude is upgraded to synthetic and lighter oil within the province before being shipped to world market (much of which is sold under the West Texas Select price point). The production cuts are an attempt to raise the price of the Western Canadian Select, which will benefit the companies that extract the oil within the province as well as increasing the provincial government’s percentage of revenue generated from oil production.

Trevor

Posted from iPhone

tsokolan Wrote:
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> That column by David Thomas is an opinion piece
> that is very anti oil slanted. Right now a lot of
> the Western Canadian Select crude is upgraded to
> synthetic and lighter oil within the province
> before being shipped to world market (much of
> which is sold under the West Texas Select price
> point). The production cuts are an attempt to
> raise the price of the Western Canadian Select,
> which will benefit the companies that extract the
> oil within the province as well as increasing the
> provincial government’s percentage of revenue
> generated from oil production.
>
> Trevor
>
> Posted from iPhone

Thanks for that information. The ability to refine local oil within Alberta keeps good jobs locally.

I agree, I think you agree, and the author seems to believe that limiting the supply of oil on the market will allow prices to rise.

Posted from Android

Lackawanna484 Wrote:
-------------------------------------------------------
> tsokolan Wrote:
> --------------------------------------------------
> -----
> > That column by David Thomas is an opinion piece
> > that is very anti oil slanted. Right now a lot
> of
> > the Western Canadian Select crude is upgraded
> to
> > synthetic and lighter oil within the province
> > before being shipped to world market (much of
> > which is sold under the West Texas Select price
> > point). The production cuts are an attempt to
> > raise the price of the Western Canadian Select,
> > which will benefit the companies that extract
> the
> > oil within the province as well as increasing
> the
> > provincial government’s percentage of revenue
> > generated from oil production.
> >
> > Trevor
> >
> > Posted from iPhone
>
> Thanks for that information. The ability to refine
> local oil within Alberta keeps good jobs locally.
>
> I agree, I think you agree, and the author seems
> to believe that limiting the supply of oil on the
> market will allow prices to rise.
>
> Posted from Android

OPEC believes that too which is why they just cut their production targets.

Oil production is a politically hot topic in Canada right now.

Here's a question for the oil companies, how come you charge significantly more for gasoline for consumers in neighbouring Provinces?

You can't tell me that it cost fifteen cents a litre to transport gsasoline from Edmonton or Calgary to communites less than two hundred miles away in BC.

 



Edited 1 time(s). Last edit at 12/12/18 08:56 by eminence_grise.

eminence_grise Wrote:
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> Oil production is a politically hot topic in
> Canada right now.
>
> Here's a question for the oil companies, how come
> you charge significantly more for gasoline for
> consumers in neighbouring Provinces?
>
> You ca't tell me that it cost fifteen cents a
> litre to transport gsasoline from Edmonton or
> Calgary to communites less than two hundred miles
> away in BC.
>

Didn't the BC NDippers sign on to the Trudeau "carbon tax?"

I am not a fan of ON premier Doug Ford, but at least he said No Way!

 

Will MacKenzie
Dundas, ON

In the U.S., gasoline taxes make a significant impact on the pump price. FL allows state, county, and local fuel taxes, so the difference across a county line can be a dime.

The bigger problem is the conflicting state gas formula rules. In the US, this has allowed two or three refineries to hold entire states and regions hostage. You can't bring much cheaper Midwest gasoline into Georgia. Or Wyoming gasoline into California, with a 70 cent spread at times.

Posted from Android

Trevor has offered an accurate analysis of this opinion piece.  In addition, the author has made a couple of glaring fundamental errors, thus the legitimacy of the piece is questionable.  That said, he does raise a good question about track capacity without additional capital expenditures.

70tonner Wrote:
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> Trevor has offered an accurate analysis of this
> opinion piece.  In addition, the author has made
> a couple of glaring fundamental errors, thus the
> legitimacy of the piece is questionable.  That
> said, he does raise a good question about track
> capacity without additional capital expenditures.

That's always been a question. A few weeks ago, I asked about directional running of oil loads on one company's track, and empties on the other company, and was hammered for that.  Chamge direction every six months, etc

FWIW, I invest in oi/gasl and I want to see Alberta succeed.  I'd like to see Canada and Canadians discuss this and reach a solution that's best or Canada. I don't see any particular benefit in selling a precious commodity at a steep discount on the world market.

I think you Canada boys pay way to much for gasoline.  For example in Ft Worth Texas we are paying $1.84 to 1.90 for regular gas per gallon.  Difference is  based on where you buy it. 

tomstp Wrote:
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> I think you Canada boys pay way to much for
> gasoline.

No kidding! The retail price of gasoline here in Montreal has almost nothing to do with the commodity price. You can go to one of those websites that tracks local prices, and you will see the retail price fluctuates weekly about 15% like a saw-tooth wave!

Ray    

Here in our part of southern Ontario, Petro Canada and Esso are always doing all they can to push the price up higher and higher.
On the weekends, the Petro Can down the road from us about 1 km will jack the price up Friday night by about 10 cents a litre ... and try to hold it there as long as they can.
By Monday, they have to drop it back down by 10 cents or so.
That is one of the main reasons I will not buy from Petro can or Esso .... I am fortunate in that I am retired, don't drive as much as I used to ... and am a Costco member so I can get my gas at MY convenience ... and usually for anywhere from 6 to 12 cents less per litre than at the major oil companies.

 

Will MacKenzie
Dundas, ON