Canadian Pacific and us

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The Roanoke (Va.) Times, November 18, 2015, Editorial



Canadian Pacific and us



Does Roanoke have anything to worry about if Canadian Pacific really does take over Norfolk Southern?



Norfolk certainly does; it could lose the headquarters of a corporation that bears the city's name — and who knows how many of the 1,150 jobs that are there.



But Roanoke? With this summer's closure of Norfolk Southern's office in downtown, have we already lost all the railroad jobs that we have to lose?



The New York Times reports that Canadian Pacific's chairman has a reputation for "efficiency" and his first goal, if his company is able to prevail — and who knows what federal regulators will have to say? — will be to cut costs. Presumably, though, a railroad company would still need actual railroads.



However, some of the analysts we've talked to say Roanoke might have something to gain if there's a CP-NS merger: More oil trains coming through.



Whether that's a good thing or not depends on your point of view.



Remember that little mishap a year ago when a CSX oil train derailed in downtown Lynchburg? Completely famous in the rail world, even on the other side of the country. "Lynchburg dodged a bullet," says Eric de Place, policy director for the Sightline Institute, an environmental policy group in Seattle. "That could have been a much worse disaster. It's a miracle nobody died in that accident."



In any case, the logic goes like this: First, look at a map of the two companies. Canadian Pacific is based in Calgary — Canada's energy capital. You'll see a spaghetti-tangle of lines serving the oil industry in Alberta — moving that "dirty" tar-sands oil the Canadians wanted to pump to our Gulf Coast through the now-rejected Keystone XL pipeline.



Those aren't the oil trains we'd see here, but Keystone is worth a few words anyway:



The American political debate over Keystone was always more symbolic than substantive. It would never have been the job-creator that conservatives claimed; nor does blocking it represent the environmental victory that liberals believed it was.



The Canadians will simply find other ways to get that oil to market; they will not let money stay in the ground. In fact, they're already figuring out work-arounds.



The previous Canadian government under Stephen Harper wanted to build its own pipeline to British Columbia — a hedge against Keystone. The new Canadian Prime Minister, Justin Trudeau, says he will block that Northern Gateway line for environmental reasons. (Oh, so he doesn't want pipelines in his country, but he's fine building them in ours, eh?) Faced with that, Canadian oil interests are now proposing 15 different rail terminals in the Pacific Northwest. Blocking Keystone may actually turn out to be both a job-creator in Oregon and Washington — and a potential environmental threat if any of those trains derail. We believe that's called irony.



Anyway, what we need to look at is North Dakota, home of the Bakken oil fields. That's where the oil trains we have rumbling through now are coming from — and where, some analysts say, a CP-NS merger could mean more.



A few words about oil: It's not all the same. Bakken oil flows like water — or gasoline. Alberta's tar-sands oil is a sludge, said to be more like peanut butter. Each requires a different refining process and most of the East Coast refineries are set up to process the lighter kind.



About half of the Bakken oil is moved by rail, and half of that is headed for the Mid-Atlantic — which explains why we've seen such an uptick in oil trains in the past few years. A quarter is headed for the Gulf Coast, another quarter for the West Coast. Bottom line: If the Bakken market is up, we see more oil trains.



(Earlier this year, it was estimated that the amount of oil shipped by rail was up 18 times over what it was just five years ago. That's down some since then because the market is down, but you get the general idea.)



Most of that Bakken oil moves out of North Dakota on Burlington Northern Santa Fe, the main railroad serving the state. However, some of it (nobody's saying how much) moves on the second biggest railroad through the region — yes, Canadian Pacific. CP has a line that crosses North Dakota diagonally on its way to Chicago where, conveniently, Norfolk Southern has a terminus.



So here's the question: Would it be easier to ship that oil east if there's a single rail network, or does it really matter if oil tankers have to move from one railroad to the next?



Some analysts say, yes, a single rail network from oilfield-to-port would bring certain — there's that word again — efficiencies.



The Montreal-based financial securities firm Desjardins last week issued a 16-page report to investors on the prospects for a CP-NS merger. One of the upsides: A merger "would be beneficial for the crude-by-rail sector in particular as it would create a single network that connects the Bakken and oil sands regions with the refineries on the U.S. east coast."



Other analysts weighed in with a similar assessment. Taylor Robinson of PLG Consulting, a Chicago-based freight logistics company, says a single rail network should make it easier — and therefore cheaper — for Bakken oil to move east. Not having to switch rail lines in Chicago, he says, "does make it more efficient, and usually takes a little bit of cost out." That, in turn, he says, would help make Bakken oil more competitive in the marketplace, and increase the demand — which would then mean more oil trains.



We're talking marginal differences here, though, and they wouldn't be automatic. Right now, oil prices are down — so Taylor says it's actually cheaper to import oil from West Africa than it is to pump it out of the ground in North Dakota. Tankers are a whole lot cheaper than trains. The main reason we see oil trains now, he says, is because contracts were already signed. However, if oil prices go up, we could see more.



There's another gem tucked in the Desjardins report, though: "The combined railroads would create a strong player in the intermodal business as the resulting network would provide a unique route from British Columbia to Florida."



Translation: Would that revive interest in Norfolk Southern's proposed intermodal terminal in Elliston?



One way or another it looks like, yes, we do have an interest in what happens between Canadian Pacific and Norfolk Southern.