The Canadian government intervened last week to end a brief rail strike between the Teamsters and the country's two largest railroad companies, averting a major disruption to cross-border trade. Yet risks linger for railed imports of heavy sour crude, with no agreement in place between the two sides and the union vowing to continue the fight in court.
The government last Thursday (August 22) ordered Canadian National Railway and Canadian Pacific Kansas City (CPKC) to enter into binding arbitration with the Teamsters Canada Rail Conference, putting an end to a brief strike. The two railroads had locked out employees at 12:01 AM Thursday after a deadline passed without a new agreement with the union representing 9,000+ Canadian rail workers. The work stoppage lasted about 16 hours.
At first blush, a rail strike would seem inconsequential to US crude oil exports given the dominance of pipeline deliveries. Today the US imports ~55 Mb/d by rail from Canada, only 1.2% of the total 4.5 MMb/d of Canadian crude delivered to the US, according to East Daley's Crude Hub Model. The amount of crude railed to the US market has fallen 65% since the Trans Mountain Pipeline Expansion (TMX) came online in May, down from 150 Mb/d delivered in January ‘24 (see figure).
TMX can move up to 590 Mb/d of heavy sour crude oil from Alberta to the Westridge Marine Export Terminal in Vancouver, BC. We estimate TMX has diverted ~500 Mb/d of Canadian heavy sour crude from the Midwest (PADD 2) and Gulf Coast (PADD 3) markets. However, growth in Canadian production has also backfilled some of the diverted barrels and kept the market relatively balanced.
Canada's energy sector and other export-oriented businesses are not out of the woods. The Teamsters called off the strike but blasted the decision by the Canada Industrial Relations Board, vowing to appeal it in federal court.
East Daley believes a disruption to railed Canadian heavy sour crude would not impact refinery supply, but may reduce some crude oil volumes re-exported from the Gulf Coast. However, a prolonged rail strike lasting a month or longer would start to affect the movement of oil sands crude.
Canadian oil sands producers sometimes rail raw bitumen to market hubs, add diluent to the bitumen, then move the heavy sour crude oil by pipeline to market. The raw bitumen is too viscous to be transported in a pipeline without the added diluent to act as a lubricant. About 750 Mb/d of diluent is needed to move 1.9 MMb/d of bitumen. Rail movements could be replaced by trucking diluent to production sites, then trucking the bitumen plus diluent to market hubs and onto pipelines. However, this will cause congestion, which would have compounding effects the longer a rail strike continues. – Kristine Oleszek.
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