Shortage of Locomotives Leads to Canadian Oil Waiting to be Shipped South

So much crude oil is being produced in North America that rail cars meant to carry crude from Canada south to Oklahoma and Texas are sitting idle. Plus, there’s the situation of a shortage of locomotives.

Reports indicate some rail terminals are “underutilized” because of the glut.

Bloomberg News reported one such terminal near Edmonton, Canada was bought for $58 million by oil-sands producer Cenovus Energy Inc. but it’s not very busy these days. Add to the situation a shortage of locomotives, and you have a company wondering about its multi-million dollar investment.

Other Canadian crude producers are in the same situation after finding that new rail terminals aren’t helping because they can’t get enough locomotives, conductors and track space to move their cargo.

As Bloomberg found out, Western Canadian crude production will be far more than the pipelines can handle by the end of the year. The production is already three times more than what existed in December 2017.

Furthermore, rail companies are now demanding longer-term commitments. They were burned once when prices fell and shipments fell just a few years ago.

The Canadian National Railway Co. now negotiates for a 12-month agreement from oil shippers. The company leaders say the surge in crude demand also came eight to ten months earlier than expected. Then there’s the issue of newly approved pipelines that will eventually start carrying more oil out of Canada southward to U.S. refineries.