The Oil Story – Moving the province’s oil via rail – Pt. 2

9 - R-2697-5A_tThe allure of rail

The aforementioned CAPP report identifies several beneficial reasons to transport crude oil by rail, aside from the “constrained pipeline capacity” situation that currently exists. Additional advantages include:

  • Speed to market: Getting oil to the refinery more quickly means producers are paid sooner and refiners get feedstock sooner.
  • Optionality/Flexibility: Railway tracks are already in place to multiple destinations throughout North America.
  • Diluent: Less or no diluent is required when transporting bitumen in rail cars, representing a significant cost savings.
  • Scalability: Producers have the flexibility to adjust volumes being shipped with manifest trains rather than unit trains. (The former are typically individual cars or small groups of cars while the latter are typically 70 to 120 railcars that move from one destination directly to another.)
  • Product integrity: Commodity isolation in separate rail cars provides for no loss of quality at destination.
  • Low capital requirements: Typical costs to build unit train terminals range from between $30 to $50 million, with a capital payout of five years or less.

Another advantage of rail, according to Saskatchewan Ministry of Highways and Infrastructure’s Cherry is the ability for rail to ease congestion and pressure on the highway and road network.

“A lot of wear and tear on our highways comes from trucks,” he says. “Being able to use rail as another transportation option takes the pressure off our roads. There are certain areas of the province, in particular, that have been affected by oil. In these areas, like Estevan for example, the number of trucks on the roads has increased by leaps and bounds.”

9 - scenic-2The real picture

A new report soon to be released from the Canadian Energy Research Institute (CERI) will set further light on the transportation of oil by rail within the country. The report, which has the working title Commodities by Rail, will identify the top commodities being transported on the rail network in Canada – from where to how many tonnes and number of railcars – and what the traffic might look like in the next decade.

The first section will provide a background of Canada’s largest players, namely CN and CP. The second section will explore the movement of commodities across Canada’s rail network, providing a snapshot of commodities on the network and in what direction they are being transported. This section will include the movement of commodities between and within provinces and the movement of commodities between and within western and eastern Canada. The third and final section of the report will forecast rail traffic in Canada in 2015, 2018, 2021, and 2024 by region and province.

“I think this report will benefit a number of different sectors,” states Pete Howard, president emeritus, CERI, and project keader of the report.

Information gleaned from the report shows that in 2012, crude oil was ranked number nine in the top list of 15 commodities transported by rail within the province of Saskatchewan. The forecast for 2024 sees oil moving up into the number two position, beat out only by “mixed loads”. According to Howard, Saskatchewan will likely see 1.5 million mixed load container railcars move across the province in 2024 and 600,000 oil cars.

Highlights from the report can be read in the following article.

9 - Shortline rail picFocus on safety

The tragic railway event that occurred in Lac Mégantic, Quebec in 2013 put the industry spotlight on safety as it relates to the transportation of crude oil. The Canadian government subsequently underwent a review of the Rail Safety Act and the Transportation of Dangerous Goods Act.

CP describes these modification as focusing on: the rules associated with securing unattended trains; the classification of crude oil being imported, handled and offered for transport or transported; and the provision of information to municipalities through which dangerous goods are transported by rail.

The current review on the part of both Transport Canada, and its counterpart the U.S. Department of Transportation, may lead to potential changes in regulatory requirements within the two acts.

According to the CAPP report, the review will focus on four key areas: classification, tank car standards, emergency response, and liability and insurance.

“Key questions remain on how new regulations will apply to the existing car fleet as well as new tanker car builds,” states the report. “New safety features could also result in lower capacity of individual tank cars or additional time and investment.”

CP reports that it will invest approximately $1.5 billion in its capital programs in 2015, of which approximately $770 million will be targeted toward annual maintenance.

CN has announced that it will continue to spend core capital to improve the productivity, fluidity and safety of its track and railways. In 2015, CN plans to invest approximately $2.6 billion in its capital programs, of which approximately $1.3 billion is targeted toward maintaining the safety and integrity of the network, particularly track infrastructure. The capital program also includes funds for projects supporting growth, and productivity.

 

CP and CN, along with the Saskatchewan Ministry of Highways and Infrastructure, have already implemented changes as a result of the Quebec incident, ahead of any anticipated regulatory changes.

A robust future

The transportation of oil within Saskatchewan and beyond has become an important part of the country’s economy. Major pipelines have been announced to help transport this oil – Keystone XL, the Trans Mountain Expansion, Enbridge’s Northern Gateway Project, and TransCanada’s proposed Energy East Pipeline. All have yet to come to fruition.

As a result, rail has become the central focus over the past few years. And the industry has responded positively, moving record numbers of railcars of crude oil. Regulatory changes concerning safety may dampen this growth slightly but most industry experts predict continued growth in the years ahead. This is evidenced by the increasing number of loading terminals in the works for Western Canada.

“As major pipeline expansions are not likely to be in place in the next few years, rail transportation is poised to play a more significant role in the near term,” concludes the CAPP report. “In the longer term, as crude oil production from western Canada is expected to grow significantly, even with new pipeline projects in operation, rail is expected to continue playing a role in niche markets and as such will continue to offer a valued transportation alternative as producers seek to expand market access.”

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