In a desperately irrational move at the end of its term in the winter of 2019, Alberta’s former NDP (New Democratic Party) government tried to defy Economics 101 by dramatically increasing crude-by-rail capacity in order to raise prices. Nobody outside former Premier Rachel Notley’s statist brain trust thought that was a good idea. Especially not the railways: CN and Canadian Pacific both insisted that the government commit to paying the $C3.7 billion contract price, whether or not the trains were needed. In the event, “or not” turned out to be a very wise condition for the railways.
crude by rail
The derailment of two separate oil trains roughly two months apart near Guernsey, Sask., each spilling more than 300,000 gallons of crude onto the ground and one igniting into a smoldering inferno, plus the resulting 30-day mandatory speed limit on such trains imposed by Transport Canada (20 mph in urban areas, 25 mph elsewhere), have raised questions about not only the cause of those derailments, but also about the durability of the tank cars, and the volatility of the crude they were carrying. It should also raise questions, and awareness, about the transport of Canadian crude on the U.S. rail system.
Within the space of a week, CBR (crude by rail), as well a pipeline-transported oil, has mushroomed into one of Canada’s most pressing problems.
Government oil trains were to start running Alberta’s glut of sludgy bitumen to foreign markets July 1 under a US$2.8 billion contract committing provincial taxpayers to the leasing of 4,400 tank cars and guaranteed payments to CN and Canadian Pacific. For the time being, they will be costly ghost trains that earn the railways real money for no haulage.
THE FINANCIAL EDGE, MARCH 2019 – On Feb. 19, the Alberta government announced that it had entered into transportation (and some logistics) contracts with CN and Canadian Pacific to begin to move Canadian oil sands crude from the Albertan province down to the Gulf of Mexico. The province intends to move 20,000 barrels per day (BPD) by rail beginning in July 2019, increasing to a total number of 120,000 BPD by midyear 2020.
After months of whining about low market value for its low-grade psuedo-oil, the Alberta government announced in November that it would purchase and operate a vast fleet of 7,000 tank cars and 80 locomotives—arguing, in Canutian defiance of Economics 101, that more supply would push up demand and price. Then, only days later in a panicked and completely opposite action, Alberta imposed production quotas to reduce supply.
The extreme cold weather impacted North American rail traffic last week as a Polar Vortex shut down Chicago and most rail traffic, freight and passenger, in the region. How did it affect CBR (crude by rail) movements? What is the short- to medium-term impact? PFL Petroleum, in its Feb. 4, 2019 Railcar Report, offered the following analysis:
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.
In a move that it says will increase demand and pricing for Alberta’s tar sands bitumen, the provincial government has affirmed that it will imminently sign orders for two unit-train’s worth of oil tank cars. The deal will be signed by year-end, Premier Rachel Notley declared Nov. 28. The carbuilder was not disclosed.
A recent U.S. court decision could give an assist to a CN-designed product aimed at making transportation of crude-by-rail safer and cheaper.