Energy sector wary of rail legislation

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A prominent oil-by-rail proponent is urging Ottawa to back away from legislation that would give grain priority over crude oil on the nation's rails, saying such a move would hurt the energy sector just as it eases the costly problem of pipeline constraints.

The biggest worry is granting grain permanently favoured access to the railway network – even after the current backlog of wheat and barley supplies, now piled up in bins across the Prairies, is depleted, Glen Perry, vice-president of marketing at Grizzly Oil Sands ULC, said in a letter to federal Transport Minister Lisa Raitt that was sent Friday.

"Grain is but one of a number of important commodities that utilize rail and favouring one over another, statutorily or permanently, is not consistent with the purpose of a commercial rail system, nor in the interest of the Canadian economy," wrote Mr. Perry, former head of rail transport provider Altex Energy Ltd.

The federal government responded to the grain backlog by ordering Canadian Pacific Railway Ltd. and Canadian National Railway Co. to begin moving a weekly total of one million tonnes – about 11,000 rail cars – by early April or face a fine of $100,000 a day. The order, in effect for four weeks, will be followed by legislation expected to be introduced next week.

The move follows months of complaints about rail service by grain growers and the companies that trade the crop, which this season was about 40 per cent larger than usual. The railways blame the grain backlog on the unexpected size of harvest and the severe winter, which slowed rail traffic and forced them to run shorter trains for safety reasons.

Mr. Perry said the rapid growth of oil movements in the past two years has done much to ease congestion on the North American pipeline network that had pressured heavy crude prices. He estimated that the 100,000 barrels a day of Canadian crude that now gets exported by train has helped add as much as $10 to the price of a barrel.

"All of this activity has been funded 100 per cent by industry, with no help or assistance from government in any way. This is not negative. We didn't ask for any support," he wrote.

Neither Ms. Raitt nor Agriculture Minister Gerry Ritz would comment on what the legislation would require of railways.

In an interview, Mr. Perry said Western Canadian grain producers had pushed for a free market with the end of the monopoly of the Canadian Wheat Board, which had previously handled the transport logistics including arranging the rail cars for their crops.

It is unlikely that farmers and the grain-handling companies favour buying rail cars, especially if this year's backlog is a one-off event, he said.

"I think the answer is that you have to accept the fact that if you have overproduction, then you're going to have problems," he said. "Secondly, if you do think you'll have to buy rail cars, it's going to have to be the government, because I don't think private industry will buy rail cars for a one-time harvest event coupled with a one-time winter event."

Another big user of trains to move oil sands bitumen, MEG Energy Corp., said it had worked to diversify transport options to also include pipelines and river barges, so that any constraint on one would be less of an expensive headache. The company steered clear of criticizing any pending legislation.

"Our goal is not to be tied to any particular connection. It's really the optionality in the portfolio, so we're well positioned to move around any particular constraint," MEG spokesman Brad Bellows said.

CP Rail would not comment on what shape the legislation would take.

"The order-in-council did place a distinct focus on grain shippers, which does raise questions about impacts on other lines of business," CP spokesman Ed Greenberg said in an interview. "For CP, we have a responsibility for all of our customers in every line of business. It's our commitment to continue to work with our shippers in other areas at the same time as we address the requirement to continue to move a record amount of grain."

A representative of the major grain-trading companies said the order simply forces the railways to meet a level of service they had committed to last fall.

The changes the grain industry is seeking to the federal rules governing rail transport are in line with those sought by a range of industries that rely on the rails to get their goods to market, including forestry, mining and fertilizer, said Wade Sobkowich of the Western Grain Elevator Association, whose members include Richardson International and Paterson Grain.