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Vol. 18, No. 12 Week of March 24, 2013
Providing coverage of Bakken oil and gas

Rail ruffles pipeliner

TC exec: rail has ‘very important role’ in moving oil, but dirtier, more dangerous

Gary Park

For Petroleum News Bakken

The increasing talk that rail can provide a larger, more durable alternative to pipelines for shipping crude shows signs of ruffling some feathers.

Alex Pourbaix, president of energy and oil pipelines with TransCanada, told a New York conference in February he did not want to be seen as “slagging” rail, then proceeded to embark on a short, sharp critique of the service.

He told the event sponsored by FirstEnergy Capital/Societe Generale that although rail can fill a “very important role,” there are some “pretty simple facts” to consider.

“For every mile you move a barrel of oil by rail, you emit three times the greenhouse gases than you do by using a pipeline and you have an order of magnitude higher risk of having some sort of incident, leak or spill.

“From that perspective, I make the point that if you’re actually concerned about the environment, for long-haul movement of oil, you very much want to see that oil move by pipeline.”

Pourbaix noted that the U.S. Department of State’s recent draft environmental impact study of TransCanada’s long-delayed 830,000 barrels per day Keystone XL pipeline (which includes provision for moving about 100,000 bpd from the Bakken) concluded that the increasing use of rail to move oil while pipelines are delayed or deferred “is not necessarily in anybody’s interest.”

Growing irritation

His comments, made in response to a single question, hinted at growing irritation within TransCanada over the fate of Keystone XL and possibly growing concern over the prospect that rail could carve out more that simply a transitional place in crude shipments, even if planned pipelines go ahead.

Crescent Point Energy, a key producer in the Saskatchewan Bakken and Shaunavon (both Upper and Lower), said it has capacity to move more than half its production of about 100,000 barrels of oil equivalent per day by rail.

In addition, company Chief Executive Officer Scott Saxberg told analysts that Crescent Point hopes to add a “rail option” later this year to transport its newly acquired output from northeast Utah since acquiring Ute Energy Upstream Holding.

The Ute assets in the Uinta Basin include 7,800 boe per day of output and 172,800 net acres in a light oil resource play.

“In 2012 we improved operational flexibility by adding 50,000 bpd of rail capacity,” Saxberg said. “That gives us the flexibility” to achieve more stable crude price differentials.

He said Crescent Point hopes to pin down rail options in Utah by mid-year to help offset a $15 per barrel differential in area oil prices.

The company has recently been shipping 19,000 bpd through Stoughton and 2,000 bpd through Dollard, two rail terminals in Saskatchewan.

Continuing rail shipment

Brian Ferguson, chief executive officer of Cenovus Energy, told the New York conference his company expects rail will be a flexible part of the transportation options for a “number of years.”

He said Cenovus is currently using rail for about 6,000 bpd and expects to reach 10,000 bpd by year’s end.

The Keystone XL report painted a much broader picture of the outlook for rail, forecasting that by late 2014 there will be enough insulated rail cars to carry 800,000 bpd of bitumen with little or no diluents, equivalent to just over 1 million bpd of dilbit (diluted bitumen), surpassing the initial XL capacity.

The report said the rail industry is quickly addressing the need for more tank cars, with loading and unloading infrastructure, estimating the U.S. is producing about 5,000 rail units per quarter (equivalent to 18,000 cars per year).

It said orders for new cars are about 8,800 units per quarter, with a 2012 backlog of 46,700 cars expected to be cleared in 2014, adding about 1.75 million bpd of rail freighting capacity for U.S. and Canadian crude over the next 18 to 24 months.

The report said 60 percent of the tank cars in production are insulated and contain steam coils able to reheat the sticky bitumen.

Unit trains of 100 cars

Because of weight limits, tank cars can carry only about 550 barrels of undiluted bitumen compared with 650-700 barrels of light crude.

The report was made on an assumption that crude movements would occur in unit trains of 100 rail cars, operating from a single starting point to a single end point, with no intermediate stops or storage. However, BNSF recently said it was considering unit trains of 118 cars.

The Canadian Association of Petroleum Producers estimated that if no new pipeline capacity is added out of Western Canada, rail must be able to handle an expected annual production growth of 175,000 bpd through 2035 to keep pace with supply and prevent shut-ins.

The report said Canadian National Rail had 14 crude oil loading facilities completed or under construction, while at least nine Western Canadian crude producers are either using rail or planning to do so by the end of 2023.

CN and Canadian Pacific Rail are currently moving 200,000 bpd, including 120,000 bpd from the Western Canada Sedimentary Basin.

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