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Panoramic view of Long Lake’s Tank Farm taken from the Hot Lime Softener at the Nexen's Long Lakes Phase 1 integrated oil sands in north eastern Alberta. Long Lake is situated about 40 km south east of Fort McMurray.Dave Olecko

Nexen Inc. has laid the groundwork for a concept to use trains to carry crude to the West Coast for export, as Canada's energy industry rushes to find new ways to move oil out of North America.

The Calgary company, which has agreed to a takeover by China's CNOOC Ltd., has spent more than a year on an idea that would see oil move by rail to Prince Rupert, B.C., where an export terminal on federal land could load it onto tankers bound for Asia.

The idea comes amid a rain of proposals pursued by industry and, more recently, provincial governments, which are seeking to move oil north, south, east and west. With export pipelines to the United States effectively full, Canadian heavy oil has backed up in Alberta, creating steep pricing discounts and billions in forfeited revenues that are driving an urgent bid for new export options.

Rail has become an increasingly viable option for oil movement, with Scotiabank on Tuesday estimating as much as 300,000 barrels per day of Canadian oil are now moving by train. Also on Tuesday, Canadian Pacific Railway Ltd. pointed to a "significant increase in volume of long-haul crude oil traffic" as a key reason for rising revenues. "Rail is starting to play a bigger role ... so it's one of the things we're looking at," said Pierre Alvarez, Nexen's vice-president of corporate relations.

Nexen has pursued the rail-to-water concept with the encouragement of the Port of Prince Rupert, which in late 2011 selected land that could be used for the export of oil. Prince Rupert's Ridley Island is already serviced by a Canadian National Railway Co. track, and the port has plans for substantial rail infrastructure.

"We're working with the port at looking at what kind of industrial development could be possible," Mr. Alvarez said. But, he added, "this is such an early stage that I would call it a concept and not much more."

The port declined comment, and Mr. Alvarez declined to describe how much oil Nexen could export or how firmly it is pursuing the idea. Nexen and CNOOC are also looking to export natural gas from B.C.

It's clear, though, that Nexen is eager to move oil west. Nexen already sends oil through Trans Mountain, a pipeline to the B.C. Lower Mainland that has served as a conduit for shipments to Pacific markets. Those shipments have been lucrative. "There's some attractiveness to getting access to those broader markets," Mr. Alvarez said.

Prince Rupert possesses North America's deepest natural harbour and the shortest distance to many Asian ports from any port outside Alaska. The use of already-built track could also skirt some of the regulatory conflict provoked by Northern Gateway, the planned Enbridge Inc. pipeline to the B.C. coast. Though environmental scrutiny would be applied to the construction of tanks and a terminal, oil can move freely today on train tank cars.

An export terminal alone would be far cheaper than the $6.5-billion Northern Gateway project, although the per-barrel cost of moving oil by trains could be higher. "Railing oil is not as safe and not as cheap as pipelining it. So in the long term, that is probably not the best solution," said Marcel Coutu, chief executive officer of Canadian Oil Sands Ltd. In the shorter term, however, pipeline problems will cause industry to look at options such as rail, he said.

Nexen has lengthy experience selling ocean-going crude from places such as Yemen and Nigeria. The company's involvement with Prince Rupert pre-dates the $15.1-billion (U.S.) CNOOC takeover, which has received Canadian approval but is still awaiting blessing from the United States. Joe Bradford, a vice-president with CNOOC Canada Inc., said an investment as a "front-end sponsor" in a big export facility would be "determined on a case-by-case basis." But, he added: "One of our biggest mantras is: better access to markets in really any way is a good thing for us."

Still, it's unlikely such a plan would escape vociferous environmental opposition. One person with knowledge of the Nexen plan said "the port authority, being a government agency, has not much to gain from getting into the whole quagmire around oil exports." The possibility of rail exports through Prince Rupert has already provoked criticism from environmentalists, who have pointed to the dangers of derailments, the potential for tanker accidents and the risks to wildlife from increased rail traffic.

On Tuesday, 16 environmental groups sent a letter to CN opposing any move toward a "pipeline-on-rail" through B.C. They wrote: "Should CN decide to try to move forward with its proposal, it would face major opposition and risks to the company."

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