April 18, 2018 2:45 PM, EDT

Canada Oil Recovery Faces Threat From Potential Rail Strike

Jerry Huddleston/Flickr

A potential strike by Canadian Pacific Railway Ltd. workers threatens to derail a recovery in Alberta’s beaten-down heavy oil prices.

On April 117, the Teamsters Canada Rail Conference and the International Brotherhood of Electrical Workers each gave Canadian Pacific a 72-hour strike notice informing the company of their plans to strike at 12:01 a.m. Eastern time April 21.

A strike would come at a critical time for Western Canadian oil producers. The heavy crude they pump is selling for $16.60 a barrel below the U.S. benchmark, from a discount of more than $30 in February. Oil flows out of Alberta to the United States have improved after pipeline and rail bottlenecks earlier in the year stymied exports.

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“Any reduction in rail capacity would not be good,” Kevin Birn, a director at IHS Energy in Calgary, said by phone. “A rail strike would stretch or constrain CP, one of the major rail lines, at a time when its most needed.”

New heavy-oil production from Suncor Energy Inc.’s Fort Hills mine, combined with reduced pressure on the TransCanada Corp.’s Keystone pipeline after a November spill filled remaining export lines to capacity this year, forcing producers to ship by rail as an alternative. But the rail companies also were constrained by heavy demand for grain shipments and cold winter weather that slowed trains.

Potential Logjam

While the maintenance shutdowns of oil-sands upgraders, including Syncrude Canada Ltd.’s plant near Fort McMurray, combined with rail lines moving “a little more” crude has helped alleviate the logjam, the discount could widen back out to between $17 and $19 a barrel once Syncrude resumes operation, Birn said. That assumes that a rail strike doesn’t happen.

CP is the second-biggest rail shipper in Canada after Canadian National Railway Inc. The carrier shipped 3,488 carloads of petroleum products the week ended April 14, up 28% from a year earlier, company data show.

“Serving a strike notice is part of the bargaining process that unions must follow if they want to be able to strike,” Canadian Pacific CEO Keith Creel said April 18 in a statement. “We remain committed to achieving a win-win solution and urge the two unions to work closely with us and the federal mediators to achieve a positive outcome as soon as possible in the hours leading up to the deadline.”

Canadian Pacific made “significant movement” in bargaining April 16, presenting Teamsters Canada with new three- and five-year agreement options, according to the company. The railroad also said it plans to present three- and five-year pacts to IBEW at a meeting April 18.

The potential strike looms as the oil-producing provinces of Alberta and Saskatchewan introduce legislation allowing them to cut oil shipments to British Columbia in retaliation for B.C.’s efforts to derail the Trans Mountain pipeline expansion project. A move to turn off the taps to B.C. could worsen the current glut by removing an export route.

“The oil industry is concerned about any further impact on the availability of rail capacity given the tight pipeline situation and is monitoring these new market developments as they unfold,” Chelsie Klassen, spokeswoman for the Canadian Association of Petroleum Producers, said in an e-mail.