CP Rail shutdown raises concerns for already constrained Canadian oil and gas industry

Canada's oil and natural gas producers are closely monitoring an ongoing shutdown of railway operations that began early Sunday, voicing unease that any prolonged work stoppage could limit Canada's ability to get more oil to market.

Supply chain troubles have already led to issues of securing essential supplies for industry

The Canadian Pacific Railway headquarters in Calgary, Alta., on March 18. Canadian oil and gas producers are closely monitoring the impact the work stoppage is having on the oil industry. (Jeff McIntosh/The Canadian Press)

Canada's oil and natural gas producers are closely monitoring an ongoing shutdown of railway operations that began early Sunday, voicing unease that any prolonged work stoppage could limit Canada's ability to get more oil to market.

"The energy industry has expressed concerns about the impact of interrupted rail transportation for Canadian products," said Ben Brunnen, a vice-president with the Canadian Association of Petroleum Producers, in an emailed comment.

"With a persistent shortage of available pipeline capacity, rail has become an increasingly crucial mode of transportation for crude oil."

Dozens of workers hit the picket line in Calgary on Sunday. There are more than two dozen outstanding issues involved in the dispute, including wages, benefits and pensions.

Canadian Pacific Railway and Teamsters Canada Rail Conference (TCRC) have both blamed each other for the shutdown as talks continue.

CP, Canada's second-largest railroad, has said it wants an immediate end to the dispute and supports the federal government taking action.

TCRC represents around 3,000 employees. In a statement posted to its website, the union said the lockout had been initiated by company management.

Energy disruptions

Crude prices have surged this year, initially led by demand exceeding supply, and then by Russia's invasion of Ukraine. Now, Canadian oil and gas producers find themselves awash in cash.

But a railway shutdown could put a crimp into the Canadian companies' plans, at least in the immediate term.

Kevin Birn, a Calgary-based analyst with market research firm IHS Markit, said the world has been struggling through supply chain issues associated with COVID-19 — and additional complications within Canada would pose challenges.

"Like all supply chain issues, it's not just a question of what's happening. It's also a question of the duration," he said.

"The longer these things go on, the more things get piled up, or you have to find alternative modes to market. That could add costs down the road."

Supply chain issues associated with COVID-19 have impacted and caused backlogs of oil production around the world. (Matthew Brown/The Associated Press)

In recent months, some petroleum service companies have complained about supply issues, particularly when it comes to products essential to ramping up oil and gas production.

CP moves synthetic crude and other refined products from Alberta out to markets, providing access to ports and transload facilities across North America, with short line railroads in Alberta's industrial heartland.

Canadian crude exports by rail topped 131,000 barrels a day in December 2021.

Industry groups concerned

Other industry groups that rely on the railway for the shipment of goods have also been urging the federal government to take action.

Rajbir Bhatti, an associate professor in supply chain management at Mount Royal University, said losses will quickly grow in the billions as a rail shutdown drags on.

"Certainly, shutting down operations, it's going to have an immediate cascading domino effect on the entire economy," Bhatti told the Calgary Eyeopener.

"So from coal to potash to fertilizer, animal feed, you name it, everything's going to take a hit now."

Leaders of the Canadian Cattlemen's Association and the National Cattle Feeders' Association were in Ottawa Monday. The organizations are calling on the federal government to introduce back-to-work legislation.

"If these trains don't run, we've got maybe two weeks of feed left," said Cattlemen's Association president Bob Lowe, adding that western Canadian cattle producers have been reliant on shipments of feed by rail from the U.S. this year.

"There is no Plan B. We have no other source of feed."

In a statement issued Monday, Alberta Beef Producers (ABP) called on the provincial government to demand action from Ottawa.

"We're here now. The countdown is on as producers are unable to bring in feed and begin to deplete stored feed. We are less than two weeks away from not being able to feed our animals," said Melanie Wowk, chair of the ABP, in the statement.

Labour Minister Seamus O'Regan, who was in Calgary on Monday, said he would remain in the city until both parties come to an agreement.

"Canadians expect them to do that ASAP," O'Regan said in an emailed statement.

With files from Tony Seskus, The Canadian Press and The Calgary Eyeopener