Larger Canadian oil producers are putting more money into leasing and buying rail cars and supporting investments in terminals as they increasingly turn to unit trains to move their crude to market, said Jean-Jacques Ruest, executive vice president of Canadian National Railway, CNR.
As the range of shippers expands, so is the volume of petroleum products being moved by rail, said officials at CNR and Canadian Pacific, CP.
CP expects to transport about 70,000 carloads (roughly equivalent to 45 million barrels) this year and reach 140,000 carloads by 2015 compared with 13,000 in 2011, while CNR is counting on doubling last year’s total of 30,000 carloads in 2013.
Cautious spending
However, CP executives said they plan to spend cautiously to upgrade tracks and infrastructure used for crude shipments.
Chief Executive Officer Hunter Harrison told CP’s annual meeting that because of uncertainty over how long transporting crude by rail will last CP has no plans to raise its capital spending above a relatively modest range of C$1.1 billion other than a possible C$60 million.
He said there’s no telling what the demand for crude-by-rail services will be in a few years, let alone a generation from now.
“We’re not going to go out and spend capital and build an infrastructure that’s going to last 40 or 45 years when we’re not sure where the (crude) market will be in five or six years,” he told shareholders.
Harrison and Chief Operating Officer Keith Creel said they do not see approval of TransCanada’s Keystone XL pipeline having an impact on CP’s crude business, claiming there is room for both pipelines and rail.
CN expects unit trains soon
A CN spokesman said his company is now assembling batches of tank cars for inclusion with regular freight train cars, but expects it will soon have whole trains — so-called unit trains — devoted to moving crude.
In their first-quarter conference calls, executives of both railroads said they are holding discussions with larger refiners and integrated producers about ways to meet rising customer demand.
Ruest said refiners are “extremely bullish on leasing cars, buying cars and doing backstop capital investments for those who are willing to build a terminal for their products.”
In addition, pipeline companies are showing interest in multimodal options and playing an investment role in loading terminals, he said.
CP expanding dealings
CP Executive Vice President Jane O’Hagan is counting on rail volumes changing as market and refinery demands for different crude grades evolve.
She said heavy crudes from Western Canada need to find appropriate refineries on the U.S. Gulf Coast and elsewhere and eventually for export.
O’Hagan said CP has expanded its dealings from marketers to producers and transloaders and is engaged in intense, confidential negotiations with producers seeking refining markets.
Claude Mongeau, CN’s chief executive officer, said his company has grown from picking up crude at its point of origin to more sophisticated deals such as agreements with large refiners who are weighing partnerships to build point-of-origin loading and unloading facilities.
Without commenting directly on the joint venture by Tesoro and Savage Cos. to build unloading and marine facilities at the Port of Vancouver in Washington State for shipment of Midcontinent oil to Tesoro’s California refineries, he said larger companies seem willing to make complex deals with an eye on the long term.
Mongeau said investments on that scale suggest the companies are investing in infrastructure to move crude by rail “for many years to come.”
He also said heavy crude producers, despite some initial doubts, apparently now see the benefits in moving crude by rail and barges, or by pipeline and rail to access refineries.
“We are seeing a range of new avenues being created and new players getting involved,” he said. “It clearly shows rail and pipeline are complementary and that we are helping to move energy to markets in an efficient way.”
—Gary Park
