Canada’s railways are adding capacity to meet the demand for their fastest growing commodity - shipping dilbit and petroleum by rail south to the US.
Both Canadian Pacific Railway Ltd and larger Canadian National Railway Co report expanded oil shipments this year and both expect demand to continue to grow. Canadian Pacific told investors it expects shipments of 85,000 to 90,000 car loads a day by the end of the year, up from 65,000 a day reached in the first nine months. A spokesman for Canadian National said the railroad expects to see 60,000 carloads a day this year, double last year’s level. Together, CN and CPR represent more than 95% of Canada’s annual rail tonne-kilometres.
The Keystone pipeline is designed to carry 830,000 barrels per day. If the pipeline is not built, IHS expects to see 700,000 barrels moving by rail by 2016.
Exxon Mobil told analysts it is looking into the construction of a rail terminal in Edmonton to transport its oil sands output. Exxon is partnering with Imperial Oil Ltd on the Kearl project, currently producing 100,000 barrels per day and expected to grow to 220,000 by 2015 and max out at 345,000 barrels a day by 2020.
The cost of shipping oil in the U.S. by rail is about $4 to $5 more expensive per barrel than by pipeline, and shipping oil by rail from the Canadian oil sands to the Gulf Coast would be $7 to $8 more expensive per barrel. Analysts say rail faces fewer obstacles than pipelines, even with the safety concerns raised by the fatal accident last summer when an unattended oil train broke away, exploding in Lac Magantic, Quebec, killing dozens in the town.
The rapidly increasing rail traffic out of the oil sands to the US is a reflection of limited pipeline capacity and long lead times to build up such capacity. Rail carriers have found a profitable niche in the market while producers have a hedge against pipeline problems.