[IPSM] Financial Times: CN Plans 'pipelines on rail" to Oil Sands

[No One Is Illegal Montreal]

http://www.financialpost.com/news-sectors/story.html?id=1479094


CN could gear up its capacity to ship by rail up to four million barrels a
day
of oil at less cost and more quickly, bypassing the need to finance huge
pipelines.

Canadian National Railway Co. has developed a transformative strategy it
calls
the "Pipeline on Rail" that can move oil-sands production quickly and
cheaply
to markets in North America or Asia.

Currently, pipelines charge $17.95 per barrel to ship oil from Alberta to
the
U.S. Gulf Coast. Estimates are that the increase in pipeline capacity to
four
million barrels a day from the oil sands to the Gulf of Mexico would cost
about
$25-billion to build and take years to complete.

CN could gear up its capacity to ship by rail up to four million barrels a
day
of oil at less cost and more quickly, bypassing the need to finance huge
pipelines. By the end of this year, the company will be shipping 10,000
barrels
daily from producers whose reserves are now stranded.

"Not enough pipeline capacity exists today to move bitumen [gooey oil-sands
production], diluted bitumen [called dilbit] or synthetic crude," Jim Foote,
CN's executive vice-president of sales and marketing, said in an interview
this
week. "We can get their products today to market using the concept of a
pipeline on rail and move it directly either into the U.S. or to the West
Coast
[for shipment to Asia], which creates the flexibility. It means smaller
producers are not just tied to a refinery down in Texas."

Mr. Foote, an American from Chicago, is excited about the concept, which
may,
once volumes build, eventually replace freight tonnage lost in the
manufacturing and forestry sectors during this severe recession.

CN recently acquired the Athabasca Northern Railway linking Edmonton to Fort
McMurray, Alta., to cash in on the oil-sands action. The railway will
deliver
the oil-sands production through the use of insulated and heatable railcars
or
by reducing its viscosity by mixing it with condensates or diluents.

The "scaleability" of the concept - up to millions of barrels per day -
means
that the railway can ramp up production cheaply and quickly to provide
immediate cash flow to producers which otherwise will have to wait years for
completion of upgraders and/or pipelines.

"That's the beauty of having the rail system. It's scaleable, can go in any
direction they want to go - to the West Coast ports of Prince Rupert,
Kitimat
or Vancouver, or down to the Gulf coast - where the capacity is already in
place and where they are used to refining heavy crude," he said.

The cost of a pipeline expansion from Edmonton to Kitimat, B.C., is
estimated
at $4-billion to handle nearly 600,000 barrels per day of bitumen and
diluent.
But producers will have to sign on, and take the pricing risk, for 20 years
and
wait years to get it built.

CN estimates it could ship and have the capacity to handle 2.6 million
barrels
a day of oil products to the West Coast if 20,000 railcars were added to its
fleet.

For instance, CN's current volume of coal shipments is equivalent to
transporting 624,000 barrels per day and represents only 5% of CN's
business.
CN moves about 130 trains a day in Western Canada alone. To add 10% of the
potential oil-sands production of four million daily to the company's
operations, or 400,000 barrels daily, would be equivalent to between four to
six new trains a day.

The rail option also circumvents the problem, for Canadian producers, of
reliance on monopoly markets in the United States, and on the fickleness of
environmental politics south of the border.

"As the oil-sands issues have developed recently, and prices come down, and
a
lot of the upgrader facilities have gone away, the need for some way to get
the
smaller and medium-sized players into the marketplace is becoming critical,"
Mr. Foote said.

"The number I have seen for constructing a pipeline to serve the West Coast
is
$4-billion. Our rail network is already in place to get to all the West
Coast
ports. Any terminal facilities needed would have to be put in place whether
customers used pipeline or rail. CN's service is scaleable, meaning capacity
can be matched with production," Mr. Foote added.

"Our target is to be moving 10,000 barrels a day by the end of this year. We
already move a lot of petroleum products. Our capabilities to handle this
product are clearly not an issue and we handle a lot more products that are
much more environmentally risky than this would be. Diluted or moved in a
car
that can be heated is similar to how we ship asphalt today."

Rail's other benefit is speed.

"We can take this to any port, any place the customer wants it to go, with a
minimum capital investment," he said. "We can get a railcar to the Gulf
Coast
in eight days but in a pipeline it could take 50 days to get there."

The rail cars can go full in both directions to lower costs, taking bitumen
down and bringing condensates back, thus lowering costs.

CN is going to test its concept shortly with producers. Immediate
beneficiaries
will be projects now being developed by Japanese, French and American
partnerships, which are located along CN's line between Edmonton and Fort
McMurray.

Close

Presented by



Tazra
-------------- next part --------------
An HTML attachment was scrubbed...
URL: <http://lists.resist.ca/pipermail/ipsm-l/attachments/20090411/0f0d0c40/attachment.html>