A number of companies including Gibson Energy Inc., Altex Energy Ltd. and Tundra Energy Marketing Ltd. have set up joint ventures with rail operators and producers to build new terminals and transport landlocked Western Canadian crude to markets across North America.
Once dismissed as an expensive alternative to pipelines, the rail industry has stepped up to meet the rising needs of Alberta producers as new pipeline proposals are entangled in intense regulatory and environmental scrutiny.
Apart from expanding their network and distribution terminals, rail transport companies are also finding other ways to improve the economics of crude-via-rail.
“Oil flows down a main pipeline at between 6 and 8 km/hr, while a unit train barreling down the track averages around 28 km/hr,” Peter Tretzakian, chief energy economist at Arc Financial Corp, wrote in a note to clients. “For a producer, getting oil to a refinery four times faster means getting paid sooner. This is not a trivial point in today’s capital intense oilfield environment where cash flow is paramount.”
Paradoxically, the anti-pipeline efforts have only strengthened the industry’s resolve to find alternative routes and distributions channels.
“Within five years there will be greater optionality, a much more efficient market for all grades of crude oil, and far less chance of intra and inter-continental price discounts,” Mr. Tretzakian said. “The biggest beneficiaries of the evolving North American oil transport systems will not be the rail or pipeline companies, but the producers.”
Like the pipeline industry, rail companies have also come under sharp scrutiny after a runaway train carrying crude oil derailed in the town of Lac Mégantic in July, triggering an explosion that killed 47 people. Analysts expect greater regulatory oversight and security measures being put in place as the oil-by-rail phenomenon picks up steam.
NEW RAIL TERMINAL OIL CAPACITY (2012-2015)
City, Province (Capacity)
Hardisty, AB (120,000 bpd)
Unity, SK (90,000 bpd)
Edmonton, AB (Bruderheim) (70,000 bpd)
Northgate, SK (70,000 bpd)
Lashburn, SK (60,000 bpd)
Cromer, MB (60,000 bpd)
Southall, SK (52,000 bpd)
Edmonton, AB (40,000 bpd)
South Cheecham, AB (32,000 bpd)
Lynton, Fort McMurray (25,000 bpd)
Lloydminster, SK (23,000 bpd)
Instow, SK (18,000 bpd)
Unity, SK (15,000 bpd)
Tilley, AB (9,000 bpd)
Whitecourt, AB (9,000 bpd)
Wainwright, AB (6,000 bpd)
Sexsmith, AB (6,000 bpd)
Lloydminster, SK (3,000 bpd)
TOTAL 708,000 bpd