Alberta’s plan to move a massive number of oil tanker cars by rail could potentially congest the flow of grain, say transportation experts, but they caution that any impact won’t fully be known until the additional trains are running.
The plan would see the province move two train units shipping 120,000 barrels of oil every day. The province would require upward of 7,000 tanker cars and 80 locomotives, said Premier Rachel Notley, who announced the plan in Ontario last week.
Rail companies would provide locomotives, staff and track capacity. The province would lease cars from midstream suppliers. A smaller batch of cars would go on line in fall 2019, with the full set-up in place by 2020.
While Notley is pushing for additional crude-by-rail capacity to close the steep oil price discount, and has emphasized grain shipments will remain top priority in this plan, it might come with unintended consequences.
Bruno Silvestre, director of the Transport Institute at the University of Manitoba Asper School of Business, said the plan will increase pressure on railway operators to move more oil.
“This pressure can significantly impact the Canadian grain supply chain and grain producers in a major way,” said Silvestre, who also teaches supply chain management.
But the impact on grain flow could also be marginal.
Barry Prentice, who also teaches supply chain management at the University of Manitoba, said the severity of the impact will depend on a number of factors.
He said any delays to grain movement will first depend on where the oil is being shipped.
If the oil is headed for congested ports in Vancouver, he said there could be issues. If it’s going east to Thunder Bay, Ont., or the United States, impacts might be non-existent.
“Yes some rail networks have congestion, and if oil is going there, then it will add to that congestion. But if it’s not going there, then I don’t think it’ll be noticed,” he said. “In the grand scheme of things, this isn’t that much oil compared to what’s moving already.”
The province hasn’t clarified where it will be shipping the oil.
Prentice said the effects will also depend on the time of year the oil is shipped.
He said if more oil is being shipped during grain’s busy time, then competition for capacity would heat up and could affect grain flow.
As well, crop volumes and the weather have to be taken into account. If volumes are high and it’s cold, causing trains to run short lines, then logjams are probable.
The final factor at play in this, Prentice said, is having enough grain-handling capacity.
He said industry is building infrastructure to meet demands, an indication handling capacity is improving.
He pointed to G3 Canada building an export terminal in Vancouver, which is slated to open in fall 2019. Parrish & Heimbecker is also moving ahead with a new export facility in the Vancouver region.
As well, railways are increasing their capacity, whether that’s through infrastructure investments or operational efficiencies.
Michael Gullo, senior director of policy and public affairs with the Railway Association of Canada, said Canadian National Railway and Canadian Pacific Railway are investing $5.1 billion on infrastructure, which includes new and extended sidings, doubling track and yard expansions.
He said the companies are also acquiring and modernizing hundreds of locomotives and thousands of rail cars to accommodate growth. As well, railways are hiring more conductors and locomotive engineers to meet that capacity.
But even though there are big infrastructure investments, some farmers are skeptical of having more tanker cars on the network.
“Our perspective would be that any additional pressure on the rail system is inevitably going to affect grain,” said Tom Steve, general manager of the Alberta wheat and barley commissions. “No one from the Government of Alberta has reached out to explain how grain will still be getting preference despite these additional pressures.”
There is a perception that grain isn’t given priority, even though CN and CP have said they will ensure they maintain capacity for grain.
While Silvestre said there have been cases of oil being prioritized over grain because oil is more profitable to ship, Prentice said that isn’t exactly the case. He said railways are committed to grain because it represents one of their biggest customers.
“Why harm one of your biggest customers, especially if shipping this oil will be temporary?” he said.
Alberta Energy Minister Marg McCuaig-Boyd said there is capacity for both, but didn’t outline how that can be achieved.
“We feel like we can do both and I’ve assured farmers in my region it’s not going to be at their expense,” she told reporters.
CN said in an email it’s looking forward to discussions with governments and stakeholders on how rail can be part of the solution to getting Canadian oil to market.
Canadian Pacific said in an email it’s also having a number of discussions and is committed to the entire supply chain.
“CP’s crude carloads have increased throughout 2018 and we have additional contracts in place to further grow our crude by rail business in 2019,” said company spokesperson Jeremy Berry.
As well, through the Transportation Modernization Act (Bill C-49), it’s expected that rail service for grain will improve.
The federal bill would financially penalize railways that fail to deliver promised rail cars for shipments on time. It also requires railways to publicly report each summer on their ability to move the year’s crop, as well as publish a report in October to demonstrate how it’ll keep shipments moving.
So far, grain seems to be moving at a good pace this year, according to Quorum Corp., which compiles weekly performance updates on Canada’s grain-handling sector.
Crude-by-rail exports have already hit an all-time high, with 269,829 barrels moving per day in September, according to the National Energy Board.