Category Archives: Canadian oil trains

Canadian province of Alberta leases 4,400 rail cars – enters crude by rail business

Repost from Reuters

UPDATE 2-Canadian province of Alberta leases 4,400 rail cars to clear oil glut

By Rod Nickel, February 19, 2019 / 12:06 PM

WINNIPEG, Manitoba, Feb 19 (Reuters) – Canada’s oil-producing province of Alberta has leased 4,400 rail cars in a multibillion-dollar move to clear a glut of crude that depressed prices, Premier Rachel Notley said on Tuesday.

Notley said Alberta would start putting cars into service in July so it can buy and sell oil itself. Canadian National Railway Co and Canadian Pacific Railway Ltd will haul a combined initial volume of 20,000 barrels per day that will reach 120,000 bpd by mid-2020.

Alberta’s rail investment is part of a rescue package for an oil industry struggling with high costs and the exit of some foreign majors. Pipelines have become congested because of environmental opposition that has stymied expansion.

The provincial government took the rare step in January of ordering oil production cuts.

“Rather than produce less, we have to find ways to move more,” Notley said in Edmonton.

The three-year plan will cost Alberta C$3.7 billion ($2.80 billion), consisting of buying oil, leasing cars and purchasing rail and loading services. Alberta expects to earn gross revenues of C$5.9 billion ($4.5 billion) from reselling oil and higher royalties to produce net revenues of C$2.2 billion.

Shares of CN and CP gained nearly 1 percent in Toronto. CN expects to handle 60 percent of Alberta’s barrels, Chief Executive J.J. Ruest said in a statement.

The Alberta government said in November, when Canadian oil fetched near record-large discounts to U.S. oil, that it was seeking train capacity. It has also provided incentives for petrochemical and partial-upgrading plants.

Canadian crude-by-rail volumes hit record highs last year, but declined in 2019 after production cuts made rail shipments less economic. Imperial Oil said it was forced to cut its own rail shipments to “near zero,” illustrating the potential for unintended consequences when governments intervene.

Economic conditions were already improving for rail shipments, Notley said.

Rail shipments are seen as a relief valve for oil when pipelines are full, but they are generally more expensive and less safe. A CN oil train derailed on Saturday in Manitoba.

Notley’s New Democratic Party government faces a stiff spring election challenge from the United Conservative Party (UCP). UCP energy critic Prasad Panda said the party was reviewing the rail plan.

Three-quarters of the cars will be the DOT-117J model, featuring thicker steel than some types. The rest will be DOT-117R cars retrofitted to meet some DOT-117J standards, but a type that BNSF Railway Co is phasing out after a derailment in Iowa last year. ($1 = 1.3205 Canadian dollars)

(Reporting by Rod Nickel in Winnipeg, Manitoba; Editing by Chizu Nomiyama and Peter Cooney)

    Canadian railways sign deal for more tar-sands crude by rail

    Repost from Reuters
    [Quote: “Increased crude shipping by rail…would represent progress in moving more Canadian oil to U.S. refineries.” ]

    Cenovus inks deal to move more crude on Canadian National Railway -source

    by Julie Gordon, Rod Nickel, September 7, 2018 / 11:18 AM

    VANCOUVER/WINNIPEG (Reuters) – Cenovus Energy Inc (CVE.TO), a major Canadian oil producer, has signed a deal to move more crude with the Canadian National Railway Co (CNR.TO), a source with direct knowledge of the matter told Reuters.

    Rail cars including crude tankers are seen at the Canadian Nationals (CN) Thornton Railroad Yards in Surrey, British Columbia, Canada, June 21, 2012. REUTERS/Andy Clark/File Photo

    The deal is one of many being quietly signed that, along with the expedited deliveries of new locomotives, will help boost Canada’s crude-by-rail shipments 50 percent by year end, a government consultant told Reuters separately.

    The source said the Cenovus-CN deal was inked days before a Canadian court last week overturned the approval of the Trans Mountain oil pipeline expansion.

    Shipper commitments put CN and smaller rival Canadian Pacific Railway Ltd (CP.TO) in position to collectively move more than 300,000 barrels per day by December, said Greg Stringham, a consultant who mediated talks among oil producers and railways for the Alberta government this year.

    Stringham did not directly address the Cenovus deal, but said new crude-by-rail “contracts are being signed. Not all of those been disclosed yet, but it is continuing.”

    Oil train cars are stopped in their tracks as smoke from a fire rises at the Port Metro Vancouver, British Columbia, Canada, March 4, 2015. REUTERS/Ben Nelms/File Photo

    The railways, burned a few years ago when booming demand for crude-by-rail vanished as oil prices fell and pipeline space opened, are now seeking rich multi-year, take-or-pay deals from producers.The 300,000 bpd would be 50 percent higher than June’s record 200,000 bpd and double 150,000 bpd achieved in December 2017. It is expected to further increase in 2019 as locomotive orders start to catch up with demand.

    The two railways and Cenovus declined to comment. The source declined to be identified as the deal is not public.

    Cenovus CEO Alex Pourbaix said in July that he was considering a multi-year commitment to move 50,000 to 60,000 bpd by rail.

    Cenovus shares rebounded to trade up as much as 0.86 percent soon after the news. Earlier in the day, they had fallen 6.4 percent after Goldman Sachs downgraded the stock to sell.

    CN shares were down 0.5 percent.

    SAFETY CONCERNS

    Increased crude shipping by rail, while still far short of Western Canada’s rail-loading capacity of nearly 1 million bpd, would represent progress in moving more Canadian oil to U.S. refineries. It remains a tiny fraction of the total 3.3 million bpd on average exported, mostly to the U.S., in 2017.

    But as crude shipments increase, so do safety concerns. In 2013, a runaway train carrying crude exploded in the Quebec town of Lac Megantic killing 47 people. In June, some 230,000 gallons of crude spilled into an Iowa river after a train derailed.

    The head of Canada’s transportation regulator said last month that stronger tank cars for transporting flammable liquids should be required sooner than a 2025 deadline.

    Enbridge Inc’s (ENB.TO) oversubscribed Mainline pipeline rations space each month as oil producers expand production, driving a bigger discount in Western Canada’s heavy crude compared to the North American benchmark CLc1.

    The increased crude by rail volumes could not happen without new locomotives that the railways are placing into service faster than before.

    “Probably the biggest constraint that was identified was the lack of locomotives being available,” said Stringham, adding that the railways went to their suppliers and were able to cut delivery times from 24 months down to nine to 12 months. CN said on Wednesday that it had ordered an extra 60 locomotives from General Electric Co (GE.N), adding to a previous deal for 200 locomotives over three years. The original order will now be completed in two years, and the additional 60 are due in 2020, CN spokesman Patrick Waldron said. Those locomotives will be used for energy transport, along with intermodal, coal and agricultural products. Western Canada’s crude inventories reached 36.3 million barrels for the week ending Aug. 31, a record level since Genscape began monitoring in 2010 as oil production expands faster than transport capacity, analyst Dylan White said.

    Reporting by Julie Gordon in Vancouver, Rod Nickel in Winnipeg; additional reporting by Allison Lampert in Montreal; Editing by Denny Thomas and David Gregorio