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‘I think I can, I know I can …’ Canada’s largest railroad promotes oil sands’ express to US Gulf, B.C. coasts; says it can provide cheaper, faster transportation than pipelines Gary Park For Petroleum News
Consigned to the outbox four years ago, the idea of shipping oil sands production from Alberta to the U.S. Gulf Coast is again doing the rounds, as Canadian National Railways touts an initiative called “Pipeline on Rails.”
Rejected in early 2005 by an industry group and the Alberta government as too costly, the concept is back on the table, with CN claiming it could carry 4 million barrels per day faster and cheaper than pipelines.
Matching that increase in capacity to the Gulf Coast would cost C$25 billion and take years to complete, CN claims.
“Not enough pipeline capacity exists today to move bitumen, diluted bitumen or synthetic crude,” CN Executive Vice President Jim Foote told Financial Post columnist Diane Francis.
“We can get those products to market today using the concept of a pipeline on rail and move it directly into the U.S. or to the West Coast (for tanker shipment to Asia), which creates the flexibility. It means smaller producers are not just tied to a refinery in Texas.”
Earlier this year, Randy Meyer, CN’s manager of oil sands sales, told a conference the railway’s analysis showed that carrying pure bitumen by rail is cheaper than moving diluted bitumen by pipeline, although he declined to disclose per-barrel costs because of ongoing discussions with various oil sands producers.
Citing the advantages of rail transport, he said it can be built to meet current demand and easily expanded to meet future demand.
Meyer said small and intermediate producers could ship as little as 5,000 bpd by rail, a significantly lower barrier to entry than the threshold needed to access pipelines, without changing market access.
He said CN would not require producers to contract for set volumes for a particular time or face a penalty.
Cost in railcars Instead CN would meet its customers’ timing based on their business requirements, “not the other way around.”
Rail service would allow producers to ramp up production quickly and cheaply and yield immediate cash flow rather than waiting years for approvals and construction of upgraders and pipelines.
In contrast with the C$4 billion projected cost of a 525,000 bpd Enbridge pipeline from Alberta to the deepwater port at Kitimat on the British Columbia coast, CN believes it could deliver 2.6 million bpd to the B.C. coast by just adding 20,000 railcars to its fleet.
Meyer estimated rail deliveries from Alberta to the Gulf Coast would take eight to 10 days, compared with 40 to 50 days by pipeline.
Fiona Murray, CN’s assistant vice president of petroleum and petrochemicals, told reporters at the same conference that testing and proving the rail option does not need a sophisticated system, or even hot bitumen, which is required to move the produce by pipeline.
CN has indicated it expects to start shipping about 10,000 bpd of stranded production later this year.
Direct refinery access The railway has direct access to Louisiana refineries and partner Kansas City Southern has transportation access to a combined total of 750,000 bpd of coking capacity on the Gulf Coast. Connections with Burlington Northern Santa Fe open up access to the Houston area.
Meyer said Canada’s largest railway is already challenging the wisdom of thinking only about pipelines to transport oil, noting that CN moves the equivalent of 210,000 bpd of coal out of Alberta and British Columbia, while Suncor Energy has used rail service from northern Alberta to carry sulfur produced at its oil sands upgrader.
The industry would face some capital investment to fully use the CN network, including about C$100,000 for each railcar with capacity of up to 600 barrels of bitumen, or a cost of C$10 million for 100 railcars to transport 60,000 barrels. Terminals and loading racks would also be needed.
CN acquired Alberta line In late 2007, CN paid C$25 million to acquire the 200-mile Athabasca Northern Railway in northeastern Alberta based on what it said at the time were long-term traffic volume commitments it negotiated with Suncor, OPTI Canada and Nexen and has spent another C$60 million of C$135 million allocated over three years to improve transit times and service consistency.
Connacher Oil and Gas is open to considering rail service for its 10,000 bpd Great Divide project based on its own experience of moving refined products to its refinery at Great Falls, Mont.
Glen Perry, senior vice president of Altex Energy, which has proposed a 425,000 bpd pipeline from Alberta to the Gulf Coast, told the conference that rail transportation might bridge the gap between conventional pipelines and new pipeline technologies which will eliminate the need for much of the diluent used to improve the pipeline flow of bitumen.
But he estimated the operating cost of Altex’s new technologies would be about US$10 per barrel, a saving of one-half to one-third of the current transport costs.
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