Canadian Pacific questions Alberta oil-train proposal

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Keith Creel, Canadian Pacific CEO
Canadian Pacific
CALGARY, Alberta — The Alberta government’s plan to open the province’s oil spigot by acquiring its own fleet of locomotives and tank cars raises more questions than it answers, Canadian Pacific CEO Keith Creel says.

“I know that they have the best of intentions, but the reality, some of the unintended consequences, I don't truly think they understand,” Creel said Wednesday during the railroad’s fourth-quarter earnings call.

Maxed-out pipeline capacity, rail transportation bottlenecks, and a glut of stored oil prompted Alberta Premier Rachel Notley in late November to propose having the provincial government acquire its own fleet of 7,000 tank cars and 80 locomotives to move oil out of the province until new pipelines are built.

The equipment would begin to arrive in December 2019 and by August 2020 would boost the province’s crude shipments by 120,000 barrels per day, making a sizeable dent in the 190,000 barrels produced per day that currently has no way to get to market.

In December, Canadian Prime Minister Justin Trudeau said Ottawa would be open to a partnership to help fund the $1 billion (Canadian) fleet.

Provincial officials, however, have provided no details on how the fleet, if purchased, would be used.

“How do they plan? How do they do contracts? How do they plan their resources,” Creel said in response to an analyst question.

Notley also ordered oil producers to curtail production by nearly 9 percent this year, a decision that will be reviewed monthly as market conditions change.

CP has a responsibility to all customers, not just oil producers, Creel says, and the railroad must think about the long-term impact of making investments to support short-term crude oil traffic.

“We've got to think a little bit further out, we got to think about unintended consequences, and I think there's a piece of that that’s either not understood or has not been considered that’s going to come into play,” Creel says.

CP and Canadian National have signed longer-term oil contracts with volume commitments to ensure that their investments in crews, locomotives, and track capacity would make financial sense in the event that oil shipments suddenly dry up, as they did a few years ago.

CP’s oil volumes peaked at 110,000 carloads in 2014, for example, only to fall to 38,000 in 2016 as pipeline capacity caught up to demand.

CP handled 25,000 carloads of crude out of Western Canada in the fourth quarter, says John Brooks, chief marketing officer, putting it on pace for 100,000 annual carloads.

Volume should hold steady for the next three months, Brooks says, before ramping up in the spring and second half of the year to a run rate of 120,000 annual carloads.

The railroad is running about 80 crude oil unit trains per month now, most of which are bound for refineries in the U.S.

It’s also seeing renewed interest from U.S. oil producers in the Bakken oil fields of North Dakota. CP is not currently moving Bakken crude.

NEWSWIRETrains News Wire

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