Crude-by-rail gathering steam

Gary Park

For Petroleum News

Bit by bit, the use of rail to move oil is gathering steam among Canadian companies, including the traditional pipeline operator Enbridge.

Driving the shift to steel wheels on steel rails is the pressing need to get crude from the Bakken field which straddles the Saskatchewan border with North Dakota and Montana, especially since hopes for TransCanada’s Keystone XL pipeline got sidetracked.

Cenovus Energy, one of the leading oil sands producers, said it is exploring the use of rail to transport incremental volumes of heavy crude from Alberta to the United States.

Chief Executive Officer Brian Ferguson said his company was one of the key shippers contracted to use Keystone XL, but added “we have not put all of our eggs in one basket.”

He said the use of rail cars is being pursued as a short-term option as Cenovus does everything it can to avoid transportation bottlenecks that would interfere with its ramping up of heavy oil production.

Cenovus Vice President of Refining, Marketing and Transportation Don Swytsun said the use of barges is also being explored to ensure the U.S. remains the key market for Canadian crude over the next decade.

Enbridge Energy Partners, a unit of the Calgary-based pipeline company, said it plans to expand its Berthold rail terminal in the Bakken shale of North Dakota by 80,000 barrels per day and include a rail car loading facility to accommodate additional volumes, anticipating it will soon increase its rail loading capacity to 100 percent from 70 percent.

The Berthold project is designed to operate at 10,000 bpd in July 2012 and reach 80,000 bpd in early 2013.

The Enbridge partnership expects the Bakken expansion to add 145,000 bpd of takeaway capacity, of which 25,000 bpd is already available, with the balance to enter service by early 2013 at a cost of US$370 million for the U.S. projects and C$190 million for the Canadian projects.

As drilling in the Bakken increases, a conference is scheduled for 2012 to determine the economic return on pipeline investment to challenge the conventional thinking that rail transportation is not a viable long-term option.

Fred Green, Chief Executive Officer of Canadian Pacific Railway, recently said his company could eventually ship 70,000 carloads of 45.5 million barrels annually from Bakken.

The company is now expanding its ability to move crude from the Saskatchewan portion of the Bakken, using its successful North Dakota Bakken model as a base for Canadian operations, which could eventually extend into Alberta.

Cenovus said it has so far contracted to ship oil from Saskatchewan on 47 rail cars every 20 to 35 days and CP Rail said the number of carloads from the North Dakota Bakken grew from 500 to 13,000 over the past two years, with expectations that the total could reach 70,000.