WEBINAR: THE ROLE OF RAIL IN CANADA’S CRUDE ... March 20, 2020 Rail...Dinara Millington, Vice...
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Dinara Millington, Vice President, Research Calgary March 10, 2020 www.ceri.ca WEBINAR: THE ROLE OF RAIL IN CANADA’S CRUDE AND PETROCHEMICAL MARKETS Choose one of the following for audio: • Mic & Speakers to use VoIP • Telephone and dial: • CANADA: 1-647-497-9385 • US: 1-213-929-4231 • ACCESS CODE: 149-006-827
Transcript of WEBINAR: THE ROLE OF RAIL IN CANADA’S CRUDE ... March 20, 2020 Rail...Dinara Millington, Vice...
Dinara Millington, Vice President, ResearchCalgaryMarch 10, 2020
www.ceri.ca
WEBINAR:THE ROLE OF RAIL IN CANADA’S CRUDE AND PETROCHEMICAL MARKETS
Choose one of the following for audio:• Mic & Speakers to use VoIP• Telephone and dial:
• CANADA: 1-647-497-9385• US: 1-213-929-4231• ACCESS CODE: 149-006-827
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WEBINAR PARTICIPATION
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Allan Fogwill
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OVERVIEWFounded in 1975, the Canadian Energy Research Institute (CERI) is an independent, registered charitable organization specializing in the analysis of energy economics and related environmental policy issues in the energy production, transportation, and consumption sectors.
Our mission is to provide relevant, independent, and objective economic research of energy and environmental issues to benefit business, government, academia and the public.
CERI publications include:
Market specific studies
Geopolitical analyses
Quarterly commodity reports (crude oil, electricity and natural gas)
In addition, CERI hosts a series of study overview events and an annual Petrochemicals Conference.
CORE FUNDERS
FUNDING SUPPORT
IVEY FOUNDATION
IN-KIND SUPPORTAlberta Energy Regulator | Bow Valley College | CEPA Foundation
JWN Energy | Northern Alberta Institute of Technology Petroleum Services Association of Canada
S.M. BLAIR FAMILY FOUNDATION
AGENDA
Introduction
Study Scope
Background of Supply Chain Logistics
Survey/Interview Results
Methodology and Assumptions
Results and Forecast
Conclusions
Q&A Period
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WHY THIS STUDY?
• Concerns have been expressed by stakeholders in the rail-basedsupply chain regarding logistical challenges of using rail to getproducts to market because those challenges are constrainingtheir growth.
• Increased reliance on rail networks for crude oil, natural gasliquids (NGLs), petrochemical and other products suggests thatthese challenges may have an impact on the economic growthpotential for Canada.
• Analysis of the economic costs of rail capacity additions and therisks of new capacity versus the status quo, and how Canadiansupply chain logistics could be impacted.
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Research Objectives
• Conduct a review of rail-based supply chain logistics
• Provide a detailed outlook for rail demand by commodity, region and direction
• Assess future investment requirements to grow capacity
• Identify challenges and opportunities within the supply chain
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Canadian Transportation Sector
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2008 2010 2012 2014 2016 2018 2020mill
ions
of d
olla
rs (1
0^3)
According to the Canadian Transportation Economic Account (CTEA):
Total transportation sector’s GDP contribution - $153.4 bln or 8% oftotal Canadian GDP
Rail transportation’s contribution to Canadian GDP is $88 billion in2018 or 4.5% of GDP
The freight volume and value of goods moved by the Canadian railnetwork have grown considerably, increasing to $144 billion in 2018compared to $75 billion in 2009.
Source: Transportation in Canada, Statistical Addendum 2016, Table G2
Presenter
Presentation Notes
Canada’s economy relies on an efficient and competitive national transportation system. Budget 2017 detailed the Government’s 11-year, $186 billion Investing in Canada Plan for infrastructure. The Plan committed significant funding to trade and transportation, including by establishing the National Trade Corridors Fund (Transport Canada 2018b). Since freight transportation by rail and its subsequent mobility are closely related to productivity and income in Canada’s economy, rail transportation improvements have been considered for boosting economic development.
2018 Canadian Rail Outflow by Commodity Share
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Regions in CERI’s Study
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Western Region– All Commodities Outflow in 2018 (Tonnes)
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The top 5 commodities are:
Coal (31,053,448)
Forest Products (7,987,262)
Miscellaneous (7,883,951)
Minerals (2,624,821)
Plastic and Chemical Products (1,271,165)
Prairies – All Commodities Outflow in 2018 (Tonnes)
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The top 5 commodities are:
Agricultural products (42,340,893)
Plastic and Chemical Products (15,779,964)
Fuel Oil and Crude Petroleum (9,031,835)
Minerals (5,096,093)
Food products (3,932,516)
Central Region– All Commodities Outflow in 2018 (Tonnes)
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The top 5 commodities are:
Miscellaneous (10,616,556)
Fuel Oil and Crude Petroleum (4,347,772)
Base Metals (4,182,760),
Forest Products (3,121,626)
Plastic and Chemical Products (2,481,440)
Atlantic Region – All Commodities Outflow in 2018 (Tonnes)
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The top 5 commodities are:
Mineral (19,540,082)
Miscellaneous (9,23,892)
Forest Products (359,929)
Automobiles and Transportation
Equipment (175,196)
Plastic and Chemical Products (123,476)
Canada Regional Commodity Outflow to U.S. & Mexico
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Canada Provincial Outflow to U.S. & Mexico 2015-2018
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Canada Commodity Inflow fromU.S. & Mexico, 2018
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Canada Provincial Inflow from U.S. & Mexico 2015-2018
Alberta Share, in 2018
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Alberta Share in the Prairie Region
Exports to the U.S. and Mexico 53.3%
Imports from U.S. and Mexico 73.9%
Alberta-Fuel Oil and Crude Petroleum Outflow Alberta-Plastic and Chemical Products Outflow
Regional Commodity Inflow/Outflow by Rail in 2018
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Canada Crude Oil Export by Rail
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2015 2016 2017 2018
x10^3 (bbl/day)
Source: CERI and NEB Government of Canada 2019
Supply Chain Overview
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CN CP Domestic
short lines
Port of Prince Rupert Port of Vancouver Port of Montreal Port of Halifax Port of Saint John Port of Toronto
Various shippers representing various economic sectors
Chicago (US) Mobile (US) New Orleans (US)
Supply Chain Challenges: Interview Results
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Lack of Commonly Accepted Metrics for Performance Delays and Network Congestion
Yards/Terminals & Ports Capacity
First Mile/Last Mile Issues
Unreliable Forecasting/Planning
Communication during Disruptions
SeasonalityOther
Challenges
Presenter
Presentation Notes
A wide range of commodities moves on the Canadian railways, with individual products measured by various units of measure and used as supply chain indicators. In many ways, this makes it difficult to define and measure current rail performance due to many indicators. For instance, capacity, velocity, or any other measures face extensive data and measurement inconsistencies. While these metrics are essential, there isn’t any commonly accepted measuring system. Delays and Network Congestion: Delays cause fewer railcars arriving in the ports, and demurrage charges caused by waiting vessels and not enough space to put unloaded freight from ships which may have to wait days to be filled or emptied. 1st Mile-Last Mile: Improvements were desired in relation to the 1st Mile-Last Mile operations. Many challenges come through the first mile-last mile flows due to poor coordination of the full supply chain network and supply and demand of railcars. Disruptions in the supply chain affect railcar supply and demand where railcars are not delivered according to their planned service, or in the quantity that was needed. Despite the systems that Class 1 railways have put in place for their planning, it is still just within their own networks. Many supply chain members want more transparency, visibility, and accuracy when it comes to planning, especially the certainty around the first/ last mile system planning. More collaboration is needed and requested, especially when time horizons for forecasts and planning for shippers and railway operators are different. Railways want to see reliable forecasts from shippers’ months in advance rather than days or weeks.
Best Practices: Interview Results
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Presenter
Presentation Notes
All members within the supply chain need to work together in a more holistic approach to addressing problems across the entire infrastructure network, increasing investment and initiating opportunities to improve the performance of the freight rail transportation system.
Sources of Data and Analysis
• Canadian Freight Analysis Framework (CFAF-Statistics Canada)
• Canadian Energy Futures 2019 (CER)
• FTR Transportation Intelligence
• Railway Association of Canada
• CN and CP Annual and Investment Reports
• Interview Results from Supply Chain Members
• Canadian Transportation Agency
• Alberta’s Industrial Heartland Association (AIHA)
• Chemistry Industry Association of Canada (CIAC)
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CERI’s Methodology
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• Multivariate Regression is used to model Freight transportationdemand for various origins and destinations.
• Annual investments are estimated at the national level using past,present and future national GDP projections.
CERI’s Rail Volume Growth Forecast
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Top 5 Commodities in 2025:
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Wei
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t)
Presenter
Presentation Notes
Average annual growth rate between 2018 and 2025 – 14% Crude will among top commodities on rail if pipelines are not built
CERI Forecast: Regional CommodityInflow/Outflow by Rail
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CERI Forecast: Regional FUEL and PLCHM Inflow/Outflow by Rail
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Canada Crude Oil Export by Rail Forecast, 2025
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2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
('000
bpd
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No Pipelines Line 3, no TMX and KXL Line 3 and TMX, no KXL Baseline - All 3 pipelines
Presenter
Presentation Notes
Crude by rail volumes will be dependent upon completion of three main export pipelines that are in various stages of construction – Line 3, Trans Mountain System (TMX) and the Keystone XL (KXL). CERI estimates that if none of three pipelines are onstream within relatively short time frame (2020-2025), additional crude by rail volumes is expected. Another factor that plays into increasing crude volumes by rail is that the provincial government of Alberta exempts the crude barrels transported via rail from the ongoing provincial crude production curtailment. The additional volume of crude to be moved by rail, and in particular bitumen is estimated to increase substantially, dpendeing on whether one, two or all three pipelines are operational. CERI built three possible scenarios of what crude by rail volumes might be. Figure 2.21 displays these scenarios against the baseline forecast (yellow line). In case of all three operating (i.e., baseline scenario presented above), the crude and other fuels transported on rail would grow from 280,000 bpd in 2019 to 360,000 bpd by 2025. In a scenario where no pipelines are operational the crude fuel volume is expected to reach almost 1.4 million bpd by 2025. The other two scenarios present cases of various degrees of available incremental pipeline capacity – with Line 3 and no TMX or KXL scenario, volumes will reach just above a million bpd, with Line 3 and TMX and no KXL, volumes will be less, averaging around 400,000 bpd in 2025.
Provincial Outflow Forecasts (%)
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Total Outflow Forecasts by Commodity (%)
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CERI’s Rail Investment Forecast
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CERI’s Railway Investment Forecast
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CERI’s Rail Investment Forecast by Category in 2025
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AIH Case Study: Additional Investment Req’s and GDP Impact
Presenter
Presentation Notes
CERI’s investment model estimated that an additional $339.2 million will be needed from 2020 to 2025 in the AIH specifically to accommodate new facilities that will become operational in this time period. As a result of additional investment, the AIH region will see additional economic benefits from the spin-offs of this investment. In fact, the GDP impact is measured to be almost $6.7 billion over the 6-year period, more than 10-fold an impact.
Conclusion
• Efficient and competitive national transportation system are closely related to productivity and income in Canada’s economy.
• Rail transportation improvements boost economic development in many sectors of national and provincial economies.
• Overall, freight weight moved by rail will increase by 14% between 2018 and 2025.
• The top five commodity groups are Agriculture, Petrochemicals, Coal, Minerals, and Forest products.
• Corridors that are anticipated to have higher traffic are between Prairie region to the West Coast and to the US/Mexico.
• Additional investment is required in the rail supply chain system in order to accommodate incremental freight volumes.
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Future Research
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While the CERI’s study was able to forecast commodity flows andinvestment, there is remaining research to be done. Potentialfuture research:
• Establish rail supply chain performance metrics
• Measure the rail capacity and congestion areas
• Examining the feasibility of extending the current supply chain
• Create a National Demand Growth Model
QUESTIONS?
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