"We're not likely over the long term to displace the most efficient way to move oil, which is going to be pipelines", Canadian Pacific chief executive Fred Green says.

26 October 2011

CPR Sees Potential Boom Transporting Oil by Rail

Calgary Alberta - Canada's railways are closely watching their opportunities to transport more of North America's growing volumes of crude oil by rail.
 
"We're not likely over the long term to displace the most efficient way to move oil, which is going to be pipelines," Canadian Pacific chief executive Fred Green says.
 
"What's different is that if we could end up with even five or 10 percent of those volumes. That's a major opportunity for us as a railway."
 
The Calgary-based company reported Tuesday that its carloads of oil from the prolific Bakken light oil play are up 50 percent over the numbers anticipated in June.
 
While the carrier had expected to move about 8,000 carloads a year, that estimate has climbed to about 13,000.
 
The potential for Bakken oil is in the neighbourhood of 70,000 carloads a year and projected revenue of $140 million, said Jane O'Hagan, CP's chief marketing officer.
 
"We have not only diversified our origins, but we've also diversified our destinations," she said.
 
O'Hagan added that 80 percent of the cars go to the Gulf of Mexico, with the remainder headed to the U.S. northeast.
 
"This market and the opportunities are opening up and coming faster to us than we would have expected."
 
The Bakken is a sprawling light oil formation in the western United States, including North Dakota, Montana, and stretching into Saskatchewan and Alberta that is also home to some of CN's oil-on-rail efforts.
 
"Since October 2010, CN has been providing truck-to-rail transportation solution for Bakken crude oil at Wilmar, Saskatchewan, where CN is loading directly from truck to rail," spokesman Warren Chandler said in an e-mail.
 
The carrier's most recent numbers show it moving 1,900 cars of freight related to the Bakken between October 2010 and June 2011, including more than 600 cars of petroleum crude to high throughput destination terminals.
 
"CN expects its Bakken-related traffic to continue to grow, and will invest in it accordingly," Chandler wrote.
 
As well, the country's largest carrier is testing concepts to move crude (heavy, light, and bitumen) from Western Canada to U.S. markets, based on customer demand, he added.
 
CP's O'Hagan believes there are indications long term opportunities are available for the railway, citing the level of investment non-railroads are making in related infrastructure.
 
"The infrastructure is going into the ground as fast as they can get it in there," she said.
 
Reuters reported in August that logistics firms had unveiled plans for several new crude-by-rail terminals.
 
Historically less than one percent of crude is moved to U.S. refineries by rail but delays in pipeline construction is putting more oil on trains.
 
U.S. Development Corp. this month began doubling the size of its year-old crude-by-rail terminal in Louisiana. It has said it plans to build five more crude-by-rail terminals in the next two years.
 
Green said one quarter of CP's $90 million capital budget for its primary Moose Jaw to Minneapolis feeder will be Bakken specific, including smaller feeder lines, upgrading existing lines, and/or expanding the capability of sidings, and new or expanded yards.
 
Some of the CP spend is in conjunction with partners.
 
"What we don't know is how fast and how big this thing could be," he said.
 
With the potential to capitalize on the growing sector, O'Hagan said the key will be diversity.
 
She sees potential not only in the Bakken, but inbound possibilities for the Marcellus shale gas play in the eastern United States, and into Alberta's industrial heartland.
 
"It's how do we make the most of those markets as well," O'Hagan said. "We have started moving some carloads of Alberta crude into the United States. We're hopeful this is going to be a growing part of the mix.
 
"We are exploring a program that would see more dedicated train loads of this crude oil moving into the U.S., but again, this is going to be largely dependent on the future demand for rail by these kinds of shippers."
 
Green said while rail can't replace pipelines for cost and volume, and pipelines are running into challenges as they try to site new routes south and west, there appears to be a new opportunity to provide transport for groups that want the flexibility to source the product to multiple markets.
 
"I'd like to believe that maybe, maybe, there is a sustainable role for ourselves," he said.
 
"It's an extraordinary opportunity... (that) is proving to be better than we originally expected."
 
Kim Guttormson.