The Oil Story – Moving the province’s oil via rail – Pt. 1

9 - EF-2795-4_tForget about taking the “Midnight Train to Georgia”. The oil trains that run through Saskatchewan have a just as exciting a story to tell. Arising out of the need to service small towns and various grain elevators, the province’s rail system has developed into a finely tuned network of commodity-driven lines run by Canadian Pacific Railway (CP) and Canadian National Railway Company (CN). Add to that a number of independently owned, short-track rail systems that were decommissioned by the two giants in the late 1980s and 1990s and you’ve got an interesting look at how the province’s railway network helps move oil across the country.

The big picture

According to a March 2014 report from the Canadian Association of Petroleum Producers (CAPP), entitled Transporting Crude Oil by Rail in Canada, the use of rail tank cars to transport crude oil has increased rapidly over the past several years. This trend is expected to continue until at least the current constrained pipeline capacity is alleviated, which is anticipated to take between three to five years.

The report states that Canada transported, by rail, almost 200,00 barrels of crude oil per day by the end of 2013. And this number is expected to grow.

“As a result of a number of new facilities and minor expansion coming into service throughout 2013, the rail-loading capacity originating in western Canada has now increased to 300,000 b/d,” states the report, which adds that the capacity at the beginning of 2013 was only 180,000 b/d.

The report goes on to suggest that by the end of 2015, Western Canada rail uploading capacity for crude oil is expected to exceed one million b/d and could be expanded to be as high as 1.4 million b/d.

Included in these recently announced new facility and expansion plans is TORQ Transloading Inc.’s building of a $100 million large-scale, state-of-the-art unit train, crude-by-rail terminal in Kerrobert, Saskatchewan. The Kerrobert Rail Terminal will be engineered to handle two 120-car unit trains per day or up to 168,000 b/d.

Additionally, Altex Energy Ltd.’s transloading terminal in Lashburn, Saskatchewan, is undergoing expansion. A 2012 track expansion increased capacity to 143 tank cars while current expansion plans will further increase this to 350 cars. A new terminal currently under construction near the existing site will be able to handle more than 60,000 b/d.

Ceres Global Ag Corp., which owns interest in the short-track Stewart Southern Railway, recently saw an expansion to its Stoughton transloading facility which has increased capacity to over 45,000 b/d.

9 - EF-3010-4_tHeavy rollers

CN is the largest railway company in Canada and, as such, has moved a lot of oil across the country and beyond.

According to Mark Hallman, director, communications and public affairs, the company moved approximately 128,000 cars of crude oil in 2014. This compares to 75,000 cars in 2013. Still, Hallman adds that CN’s crude-by-rail car loadings in 2014 accounted for only about two per cent of the company’s overall freight car loadings.

 

“CN believes its crude-by-rail business will continue to grow, as rail continues to play a complementary role to pipelines in getting crude oil to markets,” states Hallman. “Many CN customers are large producers that have invested significantly in their crude-by-rail infrastructure, such as rail cars and loading and unloading facilities.”

CN anticipates that its crude oil and frac sand (it doesn’t provide separate numbers for the two) business will increase by 35 per cent in 2015. This would bring the combined total of carloads in 292,000.

CP has also seen rapid growth in its oil business. The company moved 90,000 carloads in 2013, a dramatic increased over the 11,000 carloads reported for 2011. This makes crude the fastest growing line of the company’s business.

According to the company’s Investor Fact Book 2014, the Bakken represented 54 per cent of CP’s total $375 million crude oil revenue in 2013. Western Canada represented the remaining 46 per cent.

“We expect to move 115,000 to 120,000 carloads of crude in 2014 and anticipate it will grow to 140,000 carloads in 2015,” states the company.

9 - locomotive-2Size doesn’t matter

With both the heavy hitters – CN and CP – reporting growth in their crude oil business, it’s no surprise to see Saskatchewan’s own network of independently owned, short-track systems experiencing the same trend.

These systems may owe their origin to discontinued segments of CN’s and CP’s long-track rail systems but they have long since proven their worth many times over. Purchased by various private companies or private groups of individuals, many of the systems now play an important role in the province’s transportation of oil.

“In a lot of cases, these investors were groups of farmers or rural communities,” explains Joel Cherry, communications consultant, Ministry of Highways and Infrastructure, which is the government ministry responsible for overseeing the short-track rails within the province. “The rails were initially used for transportation of grain but they are increasingly being used for oil because of the growth of the local oil industry.”

In 2008, Saskatchewan had eight short-track rail systems that covered some 1,400 kilometres of track. Today, there are 13 systems and more than 2,000 kilometres of track. According to Cherry, the four short-track systems that transport oil are: the Stewart Southern Railway at 132 kilometres of track; the Great Western Railway at 496 kilometres; Long Creek Railroad at 66 kilometres; and Big Sky Rail Corp. at 356 kilometres.

“The bulk of oil transportation in 2013 took place with the Stewart Southern Railway and the Great Western Railway,” adds Cherry.

In 2011, Saskatchewan’s short-track systems moved a total of 2,000 cars of oil. That number jumped to 8,000 cars in 2012 and reached a record high of 21,000 in 2013.

The Saskatchewan government helps to keep its short-track systems running smoothly via a Short-Line Railway Sustainability Program that was started in 2008. The program sees the provincial participate in a 50-50 per cent cost-sharing plan with the owners of the short-track lines, with the money earmarked solely for railway track maintenance and upgrades.

“The government has invested $4.7 million in the program since its inception,” says Cherry. “That means that there has been $9.4 million invested in total.”

Watch for The Oil Story – Moving the province’s oil via rail – Pt. 2 on May 25th

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