CP Rail shutdown raises concerns for already constrained Canadian oil and gas industry

Canada's oil and natural gas producers are closely monitoring an ongoing shutdown of railway operations that began early Sunday, voicing unease that any prolonged work stoppage could limit Canada's ability to get more oil to market.

"The energy industry has expressed concerns about the impact of interrupted rail transportation for Canadian products," said Ben Brunnen, a vice-president with the Canadian Association of Petroleum Producers, in an emailed comment.

"With a persistent shortage of available pipeline capacity, rail has become an increasingly crucial mode of transportation for crude oil."

Dozens of workers hit the picket line in Calgary on Sunday. There are more than two dozen outstanding issues involved in the dispute, including wages, benefits and pensions.

Canadian Pacific Railway and Teamsters Canada Rail Conference (TCRC) have both blamed each other for the shutdown as talks continue.

CP, Canada's second-largest railroad, has said it wants an immediate end to the dispute and supports the federal government taking action.

TCRC represents around 3,000 employees. In a statement posted to its website, the union said the lockout had been initiated by company management.

Crude prices have surged this year, initially led by demand exceeding supply, and then by Russia's invasion of Ukraine. Now, Canadian oil and gas producers find themselves awash in cash.

But a railway shutdown could put a crimp into the Canadian companies' plans, at least in the immediate term.

Kevin Birn, a Calgary-based analyst with market research firm IHS Markit, said the world has been struggling through supply chain issues associated with COVID-19 — and additional complications within Canada would pose challenges.

"Like all supply chain issues, it's not just a question of what's happening. It's also a question of the duration," he said.

"The longer these things go on, the more things get piled up, or you have to find alternative modes to market. That could add costs down the road."

In recent months, some petroleum service companies have complained about supply issues, particularly when it comes to products essential to ramping up oil and gas production.

CP moves synthetic crude and other refined products from Alberta out to markets, providing access to ports and transload facilities across North America, with short line railroads in Alberta's industrial heartland.