CN, CP Push for “Pipeline on Rails”


From the Globe & Mail – Feb 16, 2011

By Nathan Vanderklippe

Canada’s two major railroad companies have begun making regular
shipments of oil, in a move that changes how Canadian crude moves to
market – and opens the door to new destinations for energy exports,
including Asia.

Although pipelines continue to carry the overwhelming majority of Canada’s oil production, both Canadian National Railway Co. (CNR-T70.721.582.29%) and Canadian Pacific Railway Ltd. (CP-T67.470.470.70%) have begun using their rail networks to deliver crude, moving past technological tests into actual commercial service.

The idea of a “pipeline on rails” has been quietly pursued by both CN
and CP in recent years. The railways believe their tracks can divert
oil to the best possible markets at any given time, freeing energy
producers from the constraints of pipelines, which are built to last for
decades and as a result cannot quickly be changed to accommodate market

The idea has gained speed in the past year, as oil prices
soaring toward $100 (U.S.) a barrel prompt a spike in crude output,
creating new volumes that railroads, which don’t have to wait years to
build new capacity, can spike. And the ability to transport oil by rail
is now building a competitive threat to Canada’s pipeline companies,
which have long been the dominant carriers of crude but are working to
expand into markets – such as Asia and the Gulf Coast – that are already
well-served by rail lines. Rail could, analysts say, prove a viable
alternative to major new projects such as Enbridge Inc.’s $5.5-billion
Northern Gateway, which would deliver Alberta crude to the B.C. West

Though rail deliveries remain modest for now, the ability
to deliver crude by track promises to transform the way oil moves inside
this continent, and how it reaches untapped customers.

unparalleled market reach and flexibility, we feel, gives shippers,
buyers … and refineries new options to explore and new ways to reach
different markets,” James Cairns, vice-president of petroleum and
chemicals with CN, told an Insight Information conference in Calgary
last week.

The company has begun sending oil sands bitumen to
California; heavy oil from Cold Lake, Alta., to Chicago and Detroit; and
crude from the Bakken, a fast-growing play in southern Saskatchewan, to
the U.S. Gulf Coast. Though rail does not have the same reach into
production fields as pipe – indeed, rail cars are typically loaded and
unloaded by truck, which is costly – CN boasts that its tracks lie
within 80 kilometres of five million barrels a day of refining capacity,
which is more than double Canada’s entire U.S. exports.

For CN,
the Bakken trade alone is now filling 250 to 300 rail cars a month;
altogether, the company is moving roughly a unit train worth of crude
per week. A unit train typically consists of 80 to 150 cars; each car
can hold 550 barrels. That means CN is carrying, at most, just over
10,000 barrels per day, far less than the two-million barrels that
pipeline company Enbridge Inc. hauls every day.

And both Enbridge
and rival TransCanada Corp. are aggressively pursuing those areas that
rail is now tapping. TransCanada, for example, recently signed
commitments for 65,000 barrels per day of crude shipments out of the
U.S. Bakken play. Enbridge is also spending heavily to build into the
Bakken, whose lack of pipeline capacity has opened a window for the
railroads. If the pipeline companies are successful, the Bakken rail
exports could be temporary.

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About Damien Gillis

Damien Gillis is a Vancouver-based documentary filmmaker with a focus on environmental and social justice issues - especially relating to water, energy, and saving Canada's wild salmon - working with many environmental organizations in BC and around the world. He is the co-founder, along with Rafe Mair, of The Common Sense Canadian, and a board member of both the BC Environmental Network and the Haig-Brown Institute.