7 February 2011

CN CP Push for a Pipeline on Rails

Canada - Canada's two major railroad companies have begun making regular shipments of oil, in a move that changes how Canadian crude moves to market, and opens the door to new destinations for energy exports, including Asia.
 
Although pipelines continue to carry the overwhelming majority of Canada's oil production, both Canadian National Railway Co. and Canadian Pacific Railway Ltd. have begun using their rail networks to deliver crude, moving past technological tests into actual commercial service.
 
The idea of a "pipeline on rails" has been quietly pursued by both CN and CP in recent years.
 
The railways believe their tracks can divert oil to the best possible markets at any given time, freeing energy producers from the constraints of pipelines, which are built to last for decades and as a result cannot quickly be changed to accommodate market shifts.
 
The idea has gained speed in the past year, as oil prices soaring toward US$100 a barrel prompt a spike in crude output, creating new volumes that railroads, which don't have to wait years to build new capacity, can spike.
 
And the ability to transport oil by rail is now building a competitive threat to Canada's pipeline companies, which have long been the dominant carriers of crude but are working to expand into markets, such as Asia and the Gulf Coast, that are already well-served by rail lines.
 
Rail could, analysts say, prove a viable alternative to major new projects such as Enbridge Inc.'s $5.5-billion Northern Gateway, which would deliver Alberta crude to the B.C. West Coast.
 
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.
 
"Our unparalleled market reach and flexibility, we feel, gives shippers, buyers, and refineries new options to explore and new ways to reach different markets," James Cairn, vice-president of petroleum and chemicals with CN, told an Insight Information conference in Calgary last week.
 
The company has begun sending oil sands bitumen to California, heavy oil from Cold Lake, Alberta, to Chicago and Detroit, and crude from the Bakken, a fast-growing play in southern Saskatchewan, to the U.S. Gulf Coast.
 
Though rail does not have the same reach into production fields as pipe, indeed, rail cars are typically loaded and unloaded by truck, which is costly, CN boasts that its tracks lie within 80 kilometres of five million barrels a day of refining capacity, which is more than double Canada's entire U.S. exports.
 
For CN, the Bakken trade alone is now filling 250 to 300 rail cars a month, altogether, the company is moving roughly a unit train worth of crude per week.
 
A unit train typically consists of 80 to 150 cars, each car can hold 550 barrels.
 
That means CN is carrying, at most, just over 10,000 barrels per day, far less than the two-million barrels that pipeline company Enbridge Inc. hauls every day.
 
And both Enbridge and rival TransCanada Corp. are aggressively pursuing those areas that rail is now tapping.
 
TransCanada, for example, recently signed commitments for 65,000 barrels per day of crude shipments out of the U.S. Bakken play.
 
Enbridge is also spending heavily to build into the Bakken, whose lack of pipeline capacity has opened a window for the railroads.
 
If the pipeline companies are successful, the Bakken rail exports could be temporary.
 
But CN and CP believe their Bakken trade is just the beginning.
 
CP, for example, now runs 80-car unit trains every week out of the U.S. Bakken, a trade that is "ramping up," according to Stephen Whitney, the railway's vice-president of marketing and sales in agri-business and merchandise.
 
"It will certainly grow to be a multiple-train weekly business", he said.
 
Nathan Vancerklippe.