Canadian Pacific Railway Ltd said on Tuesday that it should start shipping crude oil this summer from a soon-to-be-completed oil terminal in North Dakota's prolific Bakken shale prospect.
Texas-based U.S. Development Group is developing a 35,000-barrel-per-day terminal in Van Hook, N.D., 160.9 km east of Williston, and Canadian Pacific will be the only railway company using the terminal.
The Van Hook Hub will be fully online by midsummer, according to Meg Martin, a USD spokeswoman. The hub will receive truck and tanker shipments of crude oil and condensate from the Bakken shale prospect for shipment to markets elsewhere in the country.
Calgary-based CP is making infrastructure improvements on its North Dakota network in order to serve the terminal. The investment is part of about $100-million that CP, Canada's second biggest railroad, earmarked last year for improving tracks in the U.S. Midwest.
The terminal will accommodate up to 15 crude unit trains per month, which can later be expanded to 30 unit trains per month.
CP ships sand used in the controversial hydraulic fracturing process in the North Dakota shale prospect and transports crude oil out of the Bakken.
The company shipped more than 23,000 barrels per day of crude from the Bakken in 2011 and plans to increase that to about 125,000 bpd, or 70,000 carloads, in coming years.
“We have seen this market grow much faster than we ever expected it,” Tracy Robinson, CP's energy and merchandise vice-president said in an interview.
She added that CP remains in talks with USD and others about possible future oil shipping opportunities.
USD has been receiving Bakken crude shipments at its 65,000 bpd terminal in St. James, Louisiana, for over a year and is currently undertaking expansion projects to double its size. The terminal is ideally located near the Gulf Coast refining hub.
Rail transport has taken a foothold in the U.S. Midwest as imports of Canadian crude soared in the past few years, along with domestic shale oil output. The Bakken shale prospect alone gushed at 470,000 bpd in December.
Industry analysts previously estimated crude rail shipments from the Midwest to the Gulf Coast could soar to 300,000 bpd this year.
While more expensive than using pipelines, shipping by rail is more flexible, by allowing producers to route shipments to refineries that are paying more for crude.
“We're never going to be at a place where we believe rail will be a replacement for pipelines. But we are a good complement that gives the oil industry flexibility and capacity,” CP's chief marketing officer Jane O'Hagan said in an interview.
USD did not immediately provide cost estimates for the Van Hook project.
USD has other terminals in the heart of other shale prospects in the United States, including the Eagle Ford in Texas and Niobrara in Colorado. This will be its first crude terminal in North Dakota.
CP is in the middle of a proxy battle with its biggest shareholder, Pershing Square Capital Management, which wants to replace the railroad's CEO because its operational performance has lagged the industry.