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As the boom in production of crude oil in North America has grown it has far exceeded the flow capacity offered by pipelines. Transporting oil by rail has proven an effective alternative and demand for rail car tankers has risen to record levels.
One problem is that much of the supply given over to meet the new demand has been taken from elsewhere, meaning that other commodities are losing out as railway operators favour crude oil shipments. A record harvest of wheat and canola last year, combined with the increased shipments of crude by rail, means that an estimated 3 million tonnes of grain are still stuck on the Canadian Prairie, awaiting transport to the grain buyers.
Keith Bruch, the vice president of operations for Paterson Global Foods Inc., claimed that shipments of grain are two months behind schedule due to a shortage of rail cars created by the increased demand to transport oil.
“It’s looking more and more that grain is becoming second choice to oil. The railways make decisions on where they put their power and crews to maximize revenue.”
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Transport Canada reported that the number of rail cars carrying crude oil in 2012 was at 53,453, compared to just 143 in 2009, as the country’s two largest railway companies, Canadian National Railway Co. and Canadian Pacific, tap into the growing demand to ship crude oil created by rising production in Alberta.
Mark Hemmes, the president of Quorum Corp., which monitors the transportation of grain around Canada, explained that organising and allocating rail cars and labour for transporting grain and oil can take months of planning, meaning that the surge in demand from the oil industry has clashed with the unexpected surge in demand from the grain industry, and left railway operators struggling to respond.
Ed Greenberg, a spokesman for Canadian Pacific, said that “Grain is Canadian Pacific’s single largest commodity and therefore very important to our railway. We are responding to our grain customers as efficiently and quickly as possible.”
Bruch stated that grain buyers are getting angry as the delays are costing companies money. Some ships have been idling in Vancouver for weeks as they wait for grain to arrive, costing from C$12,000 ($10,700) to C$20,000 ($18,000) a day.
Sam Snyder, the director of corporate development for Grain Millers Inc., said that “moving crude by rail has definitely impacted our ability to supply our facilities.” He stated that carriers are trying to respond to this new demand from the oil industry and that it is difficult to tell whether or not it is just a “blip or the new standard.”
By. Charles Kennedy of Oilprice.com
Charles is a writer for Oilprice.com