​CP Rail CEO sees boom-time oil loads as pipe pinch roils Canada

Image: CP

Boom times are back for at least one company in Canada’s oil heartland.

Canadian Pacific Railway Ltd. may match or exceed its record 2014 pace of 110,000 crude carloads next year as a pipeline crunch stokes demand for shipping by train, Chief Executive Officer Keith Creel said late Thursday in an interview from Calgary, where the company is based.

“The demand is there,” Creel said. “Maybe a 100,000 run rate goes to 110 or 120. There’s a bit of a range between 100,000 and 120,000, but I wouldn’t expect anything above that.”

The run-up to oil-shipment levels last seen four years ago, when Canada’s benchmark crude price reached almost $90/bbls, comes as producers endure record discounts for their crude because of a dramatic lack of pipeline space.

Western Canada Select crude is trading in the $20s now, with the discount to the U.S. benchmark reaching $50/bbl earlier this month, the most on record in Bloomberg data stretching back to 2008. Producers are being forced to sell their oil for less largely because of the higher costs of shipping it by train to U.S. fuel producers, but also because an abundance of American supplies and the start of refinery maintenance season on the Gulf Coast are undercutting demand for the imports.

Canadian Pacific, the country’s second-largest railroad, handled about 23,000 carloads of crude in the third quarter, executives told analysts last week, almost tripling the tally from the same period a year ago. That fuelled a 63 percent quarterly climb in revenue from energy, chemicals and plastics -- the fastest increase among major commodities at the railroad.

Rival Canadian National Railway Co. is on pace to carry about 70,000 carloads of crude annually, CFO Ghislain Houle told an investor conference last month.

An average North American tank car holds about 700 barrels of crude, according to Bloomberg Intelligence railroad analyst Lee Klaskow. That would put Creel’s most optimistic outlook for next year at a rate of about 230,000 barrels a day, the equivalent of 8.5 percent of last year’s daily average production from the oilsands and more than OPEC member Gabon can produce.

© 2018 Bloomberg L.P.