Why rail isn’t an option to ship bitumen to new markets
Low volumes and high tolls make it a poor alternative to pipelines
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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