Energy Ink

Why rail isn’t an option to ship bitumen to new markets

Low volumes and high tolls make it a poor alternative to pipelines

August 31, 2011

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Proposing new pipelines to ship bitumen to the United States or British Columbia to access new markets continues to be public relations nightmare for the petroleum industry. There is no guarantee two high profile projects – TransCanada’s Keystone XL and Enbridge Inc.’s Northern Gateway – will get regulatory approval (although it’s looking more likely in Keystone XL’s case). So is there any other way to ship bitumen to refineries that need it?

One possibility bandied about over the years is shipping the sticky stuff by rail. The option makes sense for a number of reasons.

  • It can be loaded directly onto rail cars, eliminating the need for expensive diluents – a product that reduces the viscosity of bitumen and allows it to flow easily through pipelines.
  • The required infrastructure (i.e. – rail tracks) is already in place.
  • By eliminating the need to build massive pipelines, the volume of negative publicity these conduits have generated for the oil sands sector would decrease substantially.

CN Rail is already sending test shipments of bitumen to the Gulf Coast, as well as shipping crude from the Bakken reservoir in North Dakota to Midwest and Gulf Coast refineries. Canadian Pacific is also shipping North Dakota oil to the Gulf Coast. But as Calgary investment boutique Peters & Co. pointed out this week, it is unlikely rail will provide Alberta’s oil sands producers with any measurable relief in reaching new markets.

The Canadian pipeline sector, understandably, is not keen on rail companies muscling in on their business. The trump card for pipeline companies is that railways can’t possibly send the volumes of bitumen to markets that a pipeline can. For example, CN is currently transporting 10,000 barrels of crude per day, while TransCanada’s Keystone XL expansion would ship 700,000 barrels per day. Transportation tolls on a pipeline would be cheaper than rail as well. And don’t forget that rail shippers will need to sign long-term contracts with oil sands producers, something the producers won’t do unless there is no hope of building these mega-pipelines.

Keep these points in mind the next time you hear someone touting trains as a viable alternative to pipelines in shipping bitumen to thirsty markets. It ain’t happening.

 

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Comments

  • Dominic House

    We should not be shipping bitumen out of Alberta, PERIOD. We should upgrade and refine it here. I equate it to shipping trees to a sawyer in the USA. The big oil companies don’t care about the Alberta oil industry sustainability. They want it all now. If we can’t upgrade it here, then don’t produce it. That will increase the longevity of places like Fort McMurray, instead of turning it into a ghost town in 75 years or less at this rate.

    • Darren Campbell

      Dominic:

      You hold a view shared by many in this province. Alberta Oil associate editor Jeff Lewis has an interesting story in our September issue that delves into the differing visions for “value-added” industry in the oil sands and I hope you come back to this site and read it at some point this month.

      With a tonne of leases already bought and sold by the oil industry, the provincial government may want all the bitumen upgraded here, but they aren’t going to resort to Hugo Chavez-like actions to make it happen now. They’re too concerned the industry will up and leave it they get too heavy-handed on this issue.

  • Richard

    Of course there will be not shipping oil by rail if there are pipelines in place or if they are soon to be built. However if there is no chance of the pipelines being built then rail cars are going to be the only alternative.

    If the XL pipeline gets built and the Northern Gateway does not then we will still need a way of getting our oil to the west coast so it can be shipped to Asian markets. We do need to develop a market outside of the US if we are going to continue to thrive and rail may be the only way we can do that.

  • Ken

    A study commissioned by the State Department estimated that rail alone could haul 1.25 million barrels of Canadian crude daily by 2030, or nearly twice the amount of the proposed pipeline. Definately Plan B.