By Tim Daiss
Canada is requiring stronger tanks cars for transporting crude oil ahead of previously set deadlines, the country’s transport minister said on Wednesday.
Transport Canada, the government department responsible for developing regulations, policies and services of transportation in Canada, will now require all unjacketed CPC 1232 tank cars that carry crude oil to be phased out by November 1 – some 17 months earlier than a prior deadline. Unjacketed CPC 1232 and older DOT 111 cars that carry condensate (a volatile light hydrocarbon) will be phased out by January 1, 2019, well ahead of a previously set 2025 deadline.
Canada’s Minister of Transport Marc Garneau said that phasing out the “least crash resistant tank cars as soon as possible” would enhance the safety of communities along rail lines and help ensure the reliable transport of goods and commodities.
Canada’s move and continued push for safer tank cars comes with the Lac Megantic crude-by -rail disaster still fresh in mind. The crash occurred in the town of Lac-Mégantic, in the Eastern Townships region of Quebec, on July 6, 2013, when an unattended 74-car freight train carrying Bakken Formation crude oil rolled down a 1.2 percent grade from Nantes and derailed in downtown Lac Megantic, resulting in the fire and explosion of multiple tank cars. Forty-seven people were confirmed dead as a result of the accident.
In the past five years, both Canada and the U.S. have introduced new safety standards for crude by rail cars, including the phasing out of certain car types. DOT 111 cars involved in the Lac-Mégantic accident were phased out for crude oil usage in Canada in November 2016.
Canadian oil exports
Canada’s quicker timeline for strong tank cars that carry crude also comes as the country’s crude oil exports to the U.S. increase. In 2017, Canada was the largest foreign supplier of crude oil to the U.S., accounting for 43 percent of total U.S. crude oil imports and 2 percent of U.S. refinery crude oil intake. Canada exported 3.3 million barrels per day (bpd) to the U.S. in 2017, amounting to 99 percent of all Canadian crude oil and equivalent exports, according to Natural Resources Canada.
Moreover, Canadian crude exports to the U.S. since last year have continued to spike. Canada’s National Energy Board (NEB), its energy regulator, said in August that Canadian oil transports by rail so far this year has nearly doubled since 2017.
For the last week in June, Canadian crude exports to the U.S. were up 11.8 percent from the same time last year. The four-week moving average for that week was 12.2 percent higher year-over-year. The NEB reported total crude oil exports by rail for June averaged 204,558 bpd, an 87 percent increase from last year.
Bearish prices for Canadian oil
The quandary for Canada is that it still exports the bulk of its oil exports to the U.S. by pipeline, a cheaper and safer alternative. However, more pipelines need to be brought online to prevent bottle necks, with a knock-on effect of pushing Canadian crude prices down by as much as $30 per barrel compared to U.S. oil benchmark West Texas Intermediate Crude (WTI).
“With western Canadian pipelines full, greater volumes crude by rail volumes will continue to grow into the fall. We expect movement to average between 200,000 to 300,000 barrels per day for the year,” Kevin Birn, the director for regional energy projects at consultant group IHS Markit said last month.
Most Canadian crude exported to the U.S. heads to the Gulf Coast, where oil storage facilities, refineries and export terminals are concentrated.
This increase in Canadian crude exports also come in-spite of the U.S. shale oil boom still raging. The NEB says the U.S. still wants to buy Canadian heavy crude because many of its refineries are configured to process it and it is a cheaper feed-stock than light oil.
Going forward, there are more headwinds for Canadian oil. Despite July’s all-time high for Canadian oil exports, analysts are claiming that it’s still not high enough to clear out the glut of oil in Western Canada. Canadian oil production is expected to reach 4.7 million bpd by the end of 2018, compared to 4.5 million bpd at the end of last year, according to a NEB forecast.