CEOs, Lawmakers Sound Alarm on Heightened Canadian Rail Protests




 

(Bloomberg) -- Escalating protests against a Canadian natural gas pipeline are putting rail shipments of grain, propane, lumber and consumer goods in jeopardy and prompting consternation among executives and lawmakers.

Demonstrators are blocking rail lines and other key infrastructure to support parts of the Wet'suwet'en Nation, an indigenous group that opposes the construction of TC Energy Corp.'s planned C$6.6 billion ($5 billion) Coastal GasLink project. The pipeline would carry natural gas from Western Alberta to Kitimat, British Columbia, where the gas will be turned into LNG for export.

A blockade on a rail line to the port of Prince Rupert, British Columbia, has halted grain shipments to a port where 1,400 cars are unloaded each week, said Greg Northey, a spokesman for industry group Pulse Canada. Cenovus Energy Inc., which ships a significant portion of its crude oil production via rail, said the protests pose a serious threat to the country's economy.

"There is a significant risk, not just to my business, but to the Canadian economy if these protests continue to shut down ports and shut down rail," Cenovus Chief Executive Officer Alexander Pourbaix said Wednesday in an interview. The company shipped about 120,000 barrels of crude a day via rail in January, executives said on a call.

The intensifying protests are "of concern," said Canadian Prime Minister Justin Trudeau, who added that his administration will be engaging with ministers to look at next possible steps. "We recognize the important democratic right, and we will always defend it, of peaceful protest," Trudeau said to reporters in Dakar, Senegal. "We are also a country with a rule of law, and we need to make sure those laws are respected."

In a separate statement issued Wednesday, Transport Minister Marc Garneau said "there is time for all parties to engage in open and respectful dialog to ensure this situation is resolved peacefully, and we strongly urge these parties to do so."

Rail Networks

On Tuesday, Canadian National Railway Co. said in a statement it will have to shut down "significant" parts of its network because of the protests.

Blockades near Belleville, Ontario, and between Prince George and Prince Rupert in B.C., have already disrupted passenger traffic as well as shipments of grain, propane, lumber and consumer goods, according to CN.

"It's not just passenger trains that are impacted by these blockades, it's all Canadian supply-chains," CN Rail CEO Jean-Jacques Ruest said in the statement.

At least three Eastern Canadian refineries that have been supplied by CN's rail network have been cut off from crude-by-rail shipments on the system. The refineries account for about a third of the country's refining capacity and include Irving Oil Corp.'s Saint John plant in New Brunswick, Canada's biggest, Valero Energy Corp.'s Quebec City refinery and Suncor Energy Inc.'s Montreal plant. Valero and Irving didn't respond to emails seeking comment.

"We are closely monitoring the situation and are currently exploring alternate methods of distribution and have put measures in place to manage inventory," a Suncor spokeswoman said. "We continue to take steps to mitigate any potential impacts."

The Western Canadian oil patch has grown increasingly reliant on rail to get crude, Canada's biggest export, to refiners as far away as the U.S. Gulf Coast.

CN expects to be shipping 250,000 barrels a day by the end of the first quarter, up from 180,000 barrels a day in September, the company said last month. It shipped 36,000 carloads in the fourth quarter -- the most in the company's history.

Canadian oil prices weakened Wednesday amid the disruption with Western Canadian Select's discount to benchmark futures widening $1.10 to $16.85 a barrel. Prices were also pressured by a refinery fire in Louisiana.

The company transports more than C$250 billion worth of goods annually across a rail network of about 20,000 route-miles spanning Canada and mid-America.

Other organizations have weighed in:

The Alberta Wheat and Barley Commissions said protest blockades will cause "serious unintended consequences for farmers" and the entire agriculture industry.

"Even a disruption of only a few days will cause a massive backlog with economic losses that are ultimately borne by farmers."

The Canadian Chamber of Commerce said it is "deeply concerned about the damage to the Canadian economy"

"A rail disruption of this magnitude constitutes an emergency for the Canadian economy."

Political Minefield

Canada's oil and gas industry has been the target of a rising protest movement, including opposition to the Trans Mountain and Keystone XL conduit projects. The demonstrations are creating a political minefield for Trudeau as he tries to plot a way forward for an industry plagued with bottlenecks while fulfilling his promise to reduce Canada's carbon emissions.

Trudeau's government bought the Trans Mountain project in 2018 as a way to get Canada's crude to tidewater and faces another stark decision in the weeks ahead on whether to approve Teck Resources Ltd.'s C$20 billion Frontier oil-sands mine.

KKR & Co. and Alberta Investment Management Corp. agreed to buy a 65% stake in the Coastal GasLink project in a deal expected to close in June.

(Adds Suncor comment in 11th paragraph)

--With assistance from Stephen Wicary, Chris Fournier and James Attwood.

To contact the reporters on this story: Divya Balji in Toronto at dbalji1@bloomberg.net;Kevin Orland in Calgary at korland@bloomberg.net;Robert Tuttle in Calgary at rtuttle@bloomberg.net

To contact the editors responsible for this story: Kyung Bok Cho at kcho7@bloomberg.net, David Marino, Carlos Caminada

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