With the Keystone pipeline in political limbo and the Seaway pipeline still in the process of increasing its flow to the coast of the Gulf of Mexico, Canadian National Railway Co. is expanding its crude-by-rail service.
CN said Monday that it is working with Arc Terminals LP to build a new terminal in Mobile, Ala., to unload 40 tank cars a day carrying 25,000 barrels of Western Canadian heavy crude oil and light crude from the Bakken formation along the U.S.-Canadian border in the Prairies. This will then be delivered by pipeline and by ships to refineries along the Gulf coast. It's a market oil producers are anxious to reach.
Canadian crude currently accounts for only a tiny fraction of oil reaching Gulf refineries, which have room to accept more and are hungry for Canadian shipments, according to the Canadian Association of Petroleum Producers.
It is more evidence of the rapid pace of crude-by-rail shipping in general.
"Crude oil by rail is one of CN's fastest-growing businesses," said CN's executive vice-president and chief marketing officer, Jean-Jacques Ruest.
Throughout CN's whole rail network, "we expect to move in excess of 30,000 carloads [of crude] in 2012, and we believe we have the scope to double this business next year," Mr. Ruest said.
That's a leap ahead for CN, which only delivered 5,000 carloads of crude oil in 2011 and was only testing the movement of crude by rail in 2010.
CN will use its pre-existing rail line to now ship crude to the Mobile terminal, slated to begin operating in June next year.
Although the facility is expected to begin by unloading 40 tank cars daily, it will be built to handle up to 120 cars, or a maximum of 75,000 barrels a day. CN expects its crude oil shipments to reach 60,000 carloads in 2013.
But the advantage of this deal for oil producers is that CN will be a direct rail carrier to the Gulf, said Arc Terminal's president, John Blanchard.
"A single-line haul is more efficient and less expensive than those involving two or more rail carrier and multiple terminal switching," he said. For the return trip, the Mobile terminal will load condensate to be shipped north.
CN would not disclose the percentage of western heavy crude versus the amount of Bakken light crude it expects to be hauling to Mobile.
However, last month, the railway announced a memorandum of understanding with Tundra Energy Marketing to build a rail loading terminal in Cromer, Man., to cater to Bakken oil producers in Manitoba and Saskatchewan.
That Manitoba terminal, to begin operating in the second quarter of 2013, is expected to load roughly 50 tank cars daily (equal to around 30,000 barrels). It's part of what company watchers view as further strategic moves by CN into this sector.
"We view this [Mobile] announcement favourably as CN is capitalizing on a strategic network advantage through this deal," namely its access to the Gulf coast, said Walter Spracklin, an analyst at RBC Dominion Securities.