CP Rail CEO objects to oil production curtailments
Keith Creel told a US audience governments stepping in isn't healthy in a commercial space.
EDMONTON — The head of Canadian Pacific Railway Ltd. has voiced his discomfort at the idea of Alberta Premier Rachel Notley’s recent production curtailments, designed to draw down a glut of trapped crude oil and decrease the differential between western Canadian and US benchmark oil prices.
“So the government steps in, we didn’t like it at all,” said Keith Creel, speaking at a conference in Miami on Feb. 20.
“I don’t think that’s healthy in a commercial space. You can let the commercial deals work and let commerce take place and the deals will drive right good business decisions and investment decisions,” Creel said, adding that the moves caused “uncertainty.”
“I was pretty clear about it – I just don’t think it’s healthy.”
Despite his laissez-faire viewpoint, Creel admitted that Notley’s most recent move was “just as good if not better” than others hammered out by CP Rail.
Notley announced Feb. 19 that Alberta will spend $3.7 billion to move 120,000 barrels of landlocked oil per day to market by rail, a program that benefits both CP and rival CN Rail.
The railways have drawn on lessons from unfilled contracts following the crude-by-rail boom five years ago, entering into multi-year contracts with oil shippers that set minimum volumes and higher fees to help insulate them from volatile demand.
“We realized the risk in dealing with crude, probably more so than any other railroad because we were burned so bad the last time,” Creel said.
Notley’s plan will see Alberta lease about 4,400 rail cars to get more oil to foreign markets, including refiners on the U.S. Gulf Coast, while the province works to increase pipeline capacity.
The rail plan will net $2.2 billion for taxpayers, with the increased traffic expected to boost commercial, royalty, and tax revenue by $5.9 billion, she said.
Opposition Leader Jason Kenney dubbed the deal “corporate welfare” and “a catastrophic mistake.”
Initial daily shipments of 20,000 barrels are expected to begin as early as July along tracks owned by CP Rail as well as Canadian National Railway Co.
Crude-by-rail exports have spiked over the past year amidst a pipeline shortage and a big discount on Western Canadian Select oil, hitting a record 353,789 barrels per day in December, a 133 per cent year-over-year increase, according to the National Energy Board.
DBRS analyst Amaury Baudouin said in a recent report that “there is no indication that the trend is going to reverse.”