Railways pick up the slack with oil shipments

November 09, 2012

Pipelines take many years to plan and build and new production is coming on line courtesy of the oil sands. The railways are reacting—shipping oil by rail is CN’s fastest growing business segment.

Canada produces about 3 million barrels of oil per pay: 1.1 million conventional (western Canada), 0.3 million offshore (eastern Canada) and 1.6 million from the oil sands. The fastest growing area is the oil sands.

The large scale pipeline projects have attracted widespread media attention:

• The construction of the Keystone pipeline, designed to carry 510,000 barrels per day of diluted bitumen (‘dilbit’) to the US Gulf Coast, has been stymied by US environmental authorities and State department. It is still unclear whether the southern leg (south of Nebraska) will be approved.
• In Canada Enbridge’s Northern Gateway pipeline, designed to carry diluted bitumen from Alberta to Kitimat, BC for export to Asian markets, has met with widespread environmental and political opposition in BC. 525,000 barrels per day that could flow through the Northern Gateway pipeline if it is ever built.
• Kinder Morgan’s proposed Trans Mountain pipeline expansion to carry oil from Edmonton to Vancouver would increase capacity by 300,000+ barrels per day. This pipeline expansion is in the planning/proposal stage.

Though rail deliveries remain modest for now, the ability to deliver crude by track promises to transform the way oil moves inside this continent, and how it reaches untapped customers. So the railways have responded:

• CN expect to move in excess of 30,000 carloads of crude oil in 2012, up from only 5,000 in 2011. CN moved some 3.2 million barrels of crude in 2011. CN is working with Arc Terminals LP (Arc Terminals) to build a rail tank car unloading terminal in Mobile, Ala., to handle Western Canadian heavy and Bakken light crude oils destined to Gulf Coast refineries.
• CP now runs 80-car unit trains every week out of the U.S. Bakken.  Canadian Pacific anticipates crude oil shipments will rise from 13,000 carloads in 2011 to 70,000 carloads in 2014 CP has also assembled a right-of-way that allows it to lay track to new oil sands processing facilities, called upgraders, northeast of Edmonton. If it builds there, it will have direct access to a major supply source. Canadian Pacific moved some 8.3 million barrels of crude oil in 2011, and expects to hit 44.8 million barrels in 2012.
• Discussions are quietly underway between Calgary’s oil community, the Port of Churchhill, railway companies,to collect unrefined oil by rail from fields across Western Canada, get it to the port on the west coast of Hudson Bay and load it on Panamax-class tankers.  The Hudson Bay Railway, the 1,017-kilometre private railway that begins at The Pas, Man., and travels to Churchill. The Hudson Bay Railway is owned by OmniTRAX Canada, Inc., a private Winnipeg-based company that also owns and operates the Port of Churchill. A decision on whether to move forward is expected in January 2013. The first oil shipment could be launched in mid-to-late July and the goal is to ship two million barrels during the 2013 ice-free season to test the model.

Commentary

Obviously railways cannot carry the large volume of oil that pipelines can. Yet they have proven nimble coming into a market that did not really exist a few short years ago. Shipments out of the Port of Churchill may provide a boost for the Port and the Hudson’s Bay Railway which is under a pall now that the Canadian Wheat Board’s monopoly over western grain shipments has come to an end.

Sources

• a)http://www.cn.ca/en/media-news-arc-cn-mobile-crudeoil-20121105.htm



• b)http://m.theglobeandmail.com/globe-investor/cn-cp-push-for-a-pipeline-on-rails/article567130/?service=mobile



• c)http://business.financialpost.com/2012/10/31/oil-producers-eye-arctic-backup-plan-as-pipelines-face-uncertain-future/



• d)http://www.capp.ca/getdoc.aspx?DocId=209546&DT=NTV



• e)http://canadians.org/blog/?p=17209