Canadian Pacific: Crude oil shipments are back – and may double this year

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CP9711StPaulMN
Canadian Pacific unit crude oil train No. 550 passes through St. Paul, Minn., on the BNSF St. Paul Subdivision in March 2015.
Dan Kwarciany
NEW YORK – Crude oil shipments are returning to Canadian Pacific and could double later this year as Canadian pipeline capacity remains maxed out.

CP is running 50 to 60 unit trains per month of crude oil out of Western Canada, up from 30 to 40 per month over the winter, Chief Financial Officer Nadeem Velani told an investor conference on Wednesday.

“That has the potential to double,” he says, noting that CP is finalizing new contracts with oil producers.

Last month CP’s petroleum products traffic segment, which includes shipments of crude oil, chemicals, and plastics, was up more than 40 percent on a carload basis.

CP was among the railroads burned in the crude oil boom and bust a few years ago, when crude volumes rose to 110,000 carloads in 2014, only to fall to 38,000 in 2016 as pipeline capacity caught up to demand. The railroads were left holding the bag for capacity improvements related to oil traffic.

“We’re treading carefully here,” Velani says of current and future crude-oil contracts.

“We’re not going to get caught like we did back in the 14-15 timeframe,” he says.

The contracts have so-called take or pay mechanisms and other forms of volume commitments that will protect CP in the event that volumes crater. CP is pulling locomotives from storage and adding crews in anticipation of volume increases that include crude oil trains.

The crude oil moves are originating in Western Canada and heading to refineries on the U.S. Gulf Coast via interchange with BNSF Railway, Kansas City Southern, and Union Pacific, Velani says.

Crude oil shipments from the Bakken oil fields in the Dakotas have dried up, Velani says. Crude oil remains a small percentage of CP’s overall traffic.

For the second quarter to date, CP’s overall volume is up 4 percent when measured by revenue ton-miles, the favorite metric of the Canadian railways.

Volume probably would have been up 6 to 6.5 percent, Velani says, had it not been for shutdowns related to the strike by members of the Teamsters Canada Rail Conference, which represents the running trades.

Shippers either delayed or diverted their freight to road or rival Canadian National during the strike.

Velani called the new contract with engineers and conductors a win for both the railroad and train crews.

The revenue lost during the shutdown likely will push CP’s second-quarter operating ratio into the mid 60-percent range, up from the low 60-percent range, Velani says.

Velani spoke at the UBS Global Industrials & Transportation Conference.
CP3015ButteND
Westbound Canadian Pacific No. 3015 leads nearly 100 crude empties west of Butte, N.D., on the New Town Subdivision in September 2011.
Jeff Robertson

NEWSWIRETrains News Wire

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