The oil crash has claimed another casualty.
A $140-million (U.S.) terminal built on the Saskatchewan prairie to move Canadian crude to U.S. markets by train is closing after just a few months in operation.
The Plains Midstream Canada terminal opened in the winter in Kerrobert and was designed to load one train a day with oil destined for the United States. But the amount of oil exported by rail has plunged as a flood of cheap crude arrives by ship on the U.S. Eastern Seaboard. Shippers and refiners are balking at the premium to move Canadian oil by rail rather than through pipelines, which have added capacity recently.
The slowdown caused analysts to slash profit outlooks for railways, and has ruined the business case for some crude-by-rail terminals. Last year, Canexus Corp. sold a crude-by-rail terminal near Edmonton for $75-million, well below the construction cost of $350-million.
Erhard Poggemiller, mayor of Kerrobert, said about 30 people lost their jobs at the Plains Midstream terminal, which had its last train about a month ago.
"They have laid most of their personnel off," Mr. Poggemiller said by phone. "I have heard that it is closed until there is a resumption of the oil industry. My understanding is that there is still someone there to do maintenance and so on, for how long that will be, I don't know."
"The [Kerrobert] rail-loading facility is in the process of being shut down," said Ed Dancsok, an assistant deputy minister who works in oil and gas development in Saskatchewan's Ministry of the Economy.
"It's not being used, but it hasn't been permanently removed from service," said Sarah Kiley, a spokeswoman for the National Energy Board.
Several calls and e-mails to Plains Midstream Canada went unanswered over several days.
Beginning in 2013, North American railways began moving ever-increasing amounts of oil. Shippers and producers liked the flexibility, and the trains went places that had no pipelines, or no pipeline space.
John Zahary, president and chief executive officer of Calgary-based developer Altex Energy Ltd., said the business grew at a furious clip when North American crude traded at deep discounts to global prices, and booming production from the oil sands and U.S. shale deposits outstripped pipeline capacity.
That price disparity has long since evaporated, making international crude more attractive to coastal refineries. Meanwhile, Enbridge Inc. and others have opened new pipeline routes, enabling landlocked producers to tap markets that were previously accessible only by rail.
Mr. Zahary insists the niche business can still make money, and that another transportation pinch is coming as oil sands production bumps up against pipeline capacity in coming years. "It's not a dead business, although it's nothing like it was two or three years ago," he said.
The amount of Canadian oil exported to the United States by rail fell to 95,600 barrels a day in February, a steep drop from the 2014 average daily volume of 160,000 barrels, and the 2015 average of 111,000, according to National Energy Board statistics.
Oil volumes moving on the networks of the major North American railways fell by 17 per cent in 2015. This year, crude carloads have fallen by 14 per cent on major Canadian railroads' domestic and U.S. networks, compared with the year-earlier period, the American Association of Railroads said. Overall rail traffic is down by 7 per cent, led by a 30-per-cent drop in ores and metals.
"2016 has turned out to be quite a challenging year," said Hunter Harrison, chief executive officer of Canadian Pacific Railway Ltd., which served the Kerrobert terminal.
If the price of oil stays between $40 and $51, North American crude-by-rail volumes could fall by 16 per cent this year, according to Bloomberg and PLG Consulting.
Jean-Jacques Ruest, marketing chief for Canadian National Railway Co., said oil shipping on the rails is "very, very weak" and that the Kerrobert terminal "really has no purpose in the current marketplace."
"Pipeline capacity right now is readily available," he said earlier this month. "There's no need to pay more to move product by rail when you can move it by pipeline cheaper."