​Oil lubricates new rail strategies for North America

By: | at 11:04 AM | Channel(s): Intermodal News  

The Bakken oil fields straddling Canada and the U.S. contain an estimated 7.4 billion barrels of oil. Even with the ongoing investigation into the causes of the deadly tank car disaster in Lac-Megantic Quebec, the primary transportation system for oil is via tank car and North America’s rail companies are rapidly building capacity.

While it is not clear what impact the investigations of tank car safety by the Canada’s Pipeline and Hazardous Materials Safety Administration and the Federal Railroad Administration will have on Bakken oil shipments, for CP Rail, the Bakken formation has provided huge opportunities on both sides of the Canada-US border.

The Bakken formation lies between Canada and the U.S. in the Williston Basin and is spread out over roughly 200,000-miles stretching from Montana to North Dakota and the Canadian provinces of Saskatchewan and Manitoba.

Henry Bakken, a farmer from Tioga, North Dakota, first discovered the underground oilfield, and today the U.S. Geological Survey has estimated that 7.4-billion barrels of oil can be obtained from the property.

Since the adoption of rock fracturing to extract oil, Bakken has developed into a very large and profitable source of oil for a wide variety of companies, including Canadian owned CPR (Canadian Pacific Railway), which has rail lines into the property.

While U.S.-owned BNSF Railway has moved the lion’s share of oil from Bakken to the West Coast, CPR and UP (Union Pacific) are said to have recently entered an agreement to move oil-by-rail from Bakken to California through an interchange between the two railways at Eastport, Idaho and to refineries in California that are already at work, preparing to receive the 100-car oil trains.

Other plans for the Pacific Northwest include the construction of oil terminals in Washington State that would load barges destined for deliveries up and down the West Coast, including California in amounts larger than those now being shipped through Clatskanie, OR.

In fact, according to an August 2013 NASDAQ report, CPR now projects crude shipment to reach up to 70,000 oil-tank cars by year-end and move to 140,000 by the end of 2015.

But, while Bakken oil is fueling revenues at the railway, the company says there are other products moved by rail that also generate revenue including: frac sand (ceramic proppant), steel pipe, oil field tubular products, aggregates, chemicals, fuel condensate, construction materials and dimensional cargo.

Adding to the volume of these shipments is a recent announcement by Dakota Plains Holdings, Inc. and UNIMIN Corporation that a frac sand storage and transloading facility will be built at the Pioneer Terminal in New Town, North Dakota with a capacity of 750,000-tons per year. Construction of the facility is now underway and operations are expected to commence by January 2014. The sand (proppant) will come from UNIMIN’s newest production facility in Tunnel City, Wisconsin, and will be moved by CP Rail.

Today, the oil industry that previously had little influence on CP Rail’s revenues, is clearly on the upswing and fast becoming a major revenue sector.

Adding to CP Rail’s “energy network”, Alberta-based Gibson Energy recently announced plans for a major oil terminal at Hardisty in the Alberta oilsands that will be serviced by CP Rail. According to the announcement the terminal will be built with partner U.S. Development Group (USDG) of Houston, and will be able to ship 140,000-barrels per day, scheduled to begin by March 2014 with two unit trains of 120-cars each heading south on CPR rail lines each day.

In addition TORQ Transloading announced the opening of a $100-million rail hub near the town of Kerrobert, Saskatchewan, which will ship another 168,000-barrels of oil per day to U.S. markets. The project, 180 kilometres west of Saskatoon, could be completed in late 2014.

The Alberta-based company heading the project already operates several smaller oil and agricultural shipping facilities in the province.

The company says the Kerrobert project will be the largest oil-by-rail terminal in Western Canada in a town (pop. 1,100) that sits in the middle of an expanding oil production zone.

The oil will pass through the town of Kerrobert to the main CP rail line, where it will make its way to refineries on the east coast or in the U.S. gulf coast.

The company has said it is negotiating multiple pipeline connections to accommodate delivery of both light and heavy crude to the terminal that will be capable of handling two 120-car unit trains daily as well as truck deliveries. The facility will also be capable of handling condensate and is expected to go on-stream in the third quarter of 2014.

TORQ CEO Jarrett Zielinski said in a statement: “In the location selection process for the Kerrobert Rail Terminal, we took the scale-at-hub approach. We feel that Kerrobert is strategic in that it allows maximum diversity and flexibility for crude-by-rail out of Western Canada. It is as far south and east geographically in Canada that allows us to not only access vast amounts of pipeline delivered crude oil, but also it allows us to access significant quantities of heavy, undiluted crudes in the Lloydminster-Kerrobert corridor.”

In addition, TORQ has also announced that construction has begun on an expansion to rail infrastructure and services at the North West Terminal Ltd. at Unity, Saskatchewan, that will provide crude-by-rail customers with dual access to both CPR and CN’s (Canadian National) rail networks. The expansion will accommodate segregated crude storage and multiple additional tracks, allowing for the shipment of unit trains of up to 120 cars. At present the Unity Rail Terminal can handle up to 40 cars daily. The North West Terminal project is scheduled to be completed in the fall of this year.

In making the announcement Zielinski said: “Unity is a strategic geographic location for TORQ and our customers, given the nature of the heavy crude oil production in this area and its proximity to end user destinations. The expansion of the Unity Rail Terminal will promote larger, more efficient movements of crude-by-rail and will facilitate the ability for our customers to purchase operational crude oil storage and participate in diluent backhaul opportunities.”

Leo Quigley's avatar

American Journal of Transportation