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Tanker cars take on crude oil at the Altex Energy facility in Lashburn, Sask. (Altex Energy/Altex Energy)
Tanker cars take on crude oil at the Altex Energy facility in Lashburn, Sask. (Altex Energy/Altex Energy)

Rail makes big inroads in oil transport Add to ...

The crude oil flows thick and black, pouring like hot coffee sludge into a rail tanker on the Saskatchewan prairie.

The tracks it sits on bisect a snow-covered tableau of wheat fields and grain elevators and oil wells. The rails stretch past the horizon, winding their way to distant refineries in Texas and California and Pennsylvania, a network of oil-bearing steel ribbon that, in a sudden shift for Canada’s energy industry, has become an important new avenue for exporting oil.

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The tanker sits at a loading terminal near Lashburn, Sask., that has sprung up almost overnight to serve the new demand. A string of trucks pulls up beside a small forest of black tanks next to the tracks. Each one wrangles a hose into place, empties, then leaves. Workers pump the oil from the tanks into railcars, one at a time. When they’re busy, they load 15,000 barrels per day, destined for markets across the U.S.



At a time when the pipeline industry is facing opposition to new projects, rail is surging. In the span of months, executives who had never considered moving oil by train are not just tinkering with rail shipments, but embracing them. While these shipments are small for now, by one estimate rail could be carrying 100,000 barrels a day out of Canada by next year; others have suggested more than 75,000 barrels a day is already moving by train.

Even that is only the beginning: Plans are being laid to carry crude from the oil sands, as rail enters a head-to-head competition with the pipelines that have dominated the oil patch for the better part of a century.

Altex Energy Ltd., the company that runs the Lashburn terminal, and is working to build others in Fort McMurray and Peace River, Alta., estimates that 10 per cent of oil sands output could one day flow on rails. Lashburn oil is already finding its way to eight terminals across the continent, and rail cars are opening up surprising new opportunities. Heavy oil sent by rail is finding new markets as shipping companies, for example, find they can burn it unrefined in ocean-going vessels.

Cenovus Energy Inc., Canadian Natural Resources Ltd., Crescent Point Energy Corp., Husky Energy Inc. and Baytex Energy Corp. are among the companies experimenting with rail. But what started as an experiment is, for some, quickly becoming a change in business practice that stands to have a long-lasting impact on the way crude oil moves across North America.



Take Crescent Point. It has built its own facility to load rail cars and, in spring, was shipping 8,000 barrels a day by train. By summer, “we should be up to 15,000 to 16,000 barrels per day,” or a fifth of its oil , said Trent Stangl, Crescent Point’s vice-president of marketing and investor relations. The markets the company is accessing by rail are paying so much more for the oil that Crescent Point expects to pay off the loading facility in under a year.

Pipelines are still dominant – and a raft of new proposals, which would carry vast amounts of Alberta and Saskatchewan crude to the south, west and east, has raised questions over whether trains are merely a short-term solution.





Rail does suffer from one important problem: It’s expensive. In rough terms, it costs twice as much to ship oil by train, some $5 to $10 more a barrel.



That’s the reason the Lashburn tanker car is so important. Unlike the light oil that Crescent Point is pumping, the oil in this corner of Saskatchewan is heavy. It’s thick.



Heavy oil requires an expensive thinner called diluent to move in pipe. By rail, it moves undiluted, which evens the playing field on transportation costs.











And with rail, companies can rapidly switch markets, since rail networks reach most points of the U.S. – including areas, such as the Gulf Coast and California, that pipes from Canada barely touch.





That’s not to say rail is a shoo-in. The cost has made companies skeptical. Cenovus, which is boosting its daily train movements from 2,000 to 5,000 barrels this year, has supported two new pipeline proposals to move oil to the West Coast, for example.

Chief executive officer Brian Ferguson calls rail “really interesting” and a “good short-term solution for relatively small volume.” But “anything of size in terms of shipments will require pipeline connections.”



Still, rail service has some powerful backers. Tesoro Corp. is building up capacity to receive 30,000 barrels a day at its Anacortes refinery in Washington state. In mid-April, U.S. Development Group LLC said it had completed an expansion at its St. James, La., terminal, allowing it to offload 130,000 barrels a day from trains.

The rail companies are pushing hard, too. Former CN chief executive officer Hunter Harrison was personally involved with launching oil movements on that company’s tracks. And CP, the company Mr. Harrison is now seeking to lead, has made oil a key push going forward. In 2009, CP moved 500 carloads of oil – about 250,000 barrels a year. By 2014, it expects that to grow to 70,000 carloads a year, or nearly 100,000 barrels a day.



CP is optimistic that its burgeoning oil business is here to stay.

“What we’re discovering as we open up our destination matrix is that rail can get to markets that pipelines don’t serve now and really have no intention of serving,” said Tracy Robinson, a CP vice-president who has helped direct the company’s crude ambitions. She pointed, for example, to the oil trains currently heading to the northeastern U.S.

“We do believe it will be a permanent model,” she said.

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