A string of railway tank cars - Date/Photographer unknown.

12 March 2013

Oil a Canadian Nightmare?
Not So Says CP

Canada - One of the perks of living in the Idaho panhandle, snuggled between Washington and Montana, is the ability to eavesdrop on our Canadian neighbors just to the north. During a recent drive to work, I was paying close attention to the CBC radio Eyeopener show, which is broadcast out of Calgary, Alberta.
 
David Gray was speaking with economist Jeff Rubin and naturalist David Suzuki. The topic:  economic growth and energy, particularly how the two are playing out in Canada.
 
David Suzuki set the tone when he said, "It's clear that energy is a critical element now of our economic future," and went on to warn that the Canadian government's energy ambitions are at a turning point, and could be hampered if the U.S. turns down the Keystone XL Pipeline. Eyeopener host David Gray then looked out the window of his Calgary radio studio and wondered openly if the conversation could be brought to some of the companies headquartered in that city.
 
Jeff Rubin, a former chief economist at CIBC World Markets and author of the best-selling book "The End of Growth," responded with this:
 
"Here's what I would say to the board room tables of the office towers that you're looking at. Stephen Harper's dream of Canada becoming an energy superpower is quickly turning into an economic nightmare, and what's driving that economic nightmare is some of the highest cost of oil extraction and the lowest price for oil in the world, and that's why I believe that while the oil sands does have 170 billion barrels of oil trapped in it, most of that oil is gonna stay in the ground, and what's gonna keep it in the ground is not the David Suzukis of the world. What's gonna keep it in the ground is economics."
 
Stunning, dire, words when compared to all the glowing economic news coming out of the Bakken oil formation that straddles the border between south central Canada and the north central U.S. True, the Bakken is a different environment, with a different extraction process, than the oil sands. But different enough to Canada's economy?
 
I thought I would do CBC's Eyeopener a favor and actually bring their discussion to one of those corporate offices they mentioned in Calgary. A link to the program was forwarded to Canadian Pacific Railway. The office of President and CEO E. Hunter Harrison chose CP spokesman Ed Greenberg to respond on Mr. Harrison's behalf.
 
CP's Greenberg told Railway Age, "While I can't comment on the future state of Canadian oil exports, I can provide CP's outlook of moving oil by our railroad on our network. Our oil-by-rail business has been growing for several years and continues to experience growth as we move oil out of the North Dakota Bakken and Western Canada. Across our network in Canada and the United States, we moved about 500 carloads in 2009, 13,000 in 2011, over 53,000 carloads in 2012. Our initial forecast of a 70,000 annual carload run rate in 2013 was reached in January, and at present we expect the growth to continue throughout this year. Beyond 2013, our railway has a line of sight of two-to-three times present volumes going forward."
 
When asked to further explain that 70,000 run rate figure, Greenberg said, "The 70,000 carloads is an annualized number for this year. The run rate in January was equivalent to 70,000 carloads on an annualized basis. So, by January of this year, we had reached a run rate that indicated 70,000 carloads being moved by the end of 2013, which was sooner than expected."
 
If that's not enough to restore your outlook for Canadian oil, consider these news items from just the first week of March:

• Canada's Financial Post reported that Canadian National Railway is expected to move 100,000 barrels of crude oil this year;
   
  
• The Washington Post predicted that total rail shipments (CP and CN) of crude from the Canadian oil sands will quadruple this year. The Post also mentioned potential U.S. approval for the Keystone XL Pipeline, and the view held by some that rail's share of the oil sands haul-out would be miniscule compared to pipelines. But other sources told the Post that Canadian railroads are on track this year to handle what would be more than a quarter of Keystone XL's capacity;
   
  
• Reuters reported that Phillips 66 is looking to expand rail car off-loading capacity for U.S. and Canadian crude at its refinery and ship terminal on the northwest Washington coast.

Even beyond that CBC broadcast, I managed to catch here in the States, there is a level of concern among some Canadians regarding the viability of the oil sands, a concern which appears to be going unnoticed by those in the U.S. who are riding high on the Bakken boom. Whatever the future may hold for oil economics, whether in Canada or the U.S., the railroads that currently move that oil, including Canadian Pacific, are enjoying record growth from it, and with no end in sight.
 
Bruce Kelly.

Vancouver Island
British Columbia
Canada