Thousands
of kilometers of rail lines crisscross
Saskatchewan
’s landscape, working hard to build the province they helped to start.
Now as oil in addition to agriculture sits at the forefront of
Saskatchewan’s newfound boom, a proposed “Pipeline on Rails” by CN
just may use some of those existing rail lines to make it easier for
Saskatchewan oil companies to get into the oil game, by taking it back
to its transportation roots.
An
idea initially proposed more than a year ago to CN by Altex Energy, a
Calgary-based pipeline company, the original intent of the idea was to
solve a particular problem that Altex itself was facing:
how to convince heavy oil producers to ship their products
undiluted so that when Altex rolls out it’s new dilbit-free pipeline,
producers would already be in the habit. Today the “Pipeline on
Rails” has evolved to the point where CN is ready to transport not
only undiluted heavy oil but any oil product that requires movement to
market.
If
utilized by producers, not only could it work to solve Altex’s own
problem, it could also work to solve some of the other major issues
facing today’s oil industry. Namely,
the current risks, costs and wait times associated with pipelines.
What
CN proposes is threefold: One,
to use existing rail infrastructure to move oil faster, to wherever
market demand exists, whether it be to current markets in the U.S. Gulf
Coast or out west, where new Asian markets are beginning to emerge.
Two, to do so without the added expenditures and risk that
building new pipelines would entail including the long term investment
companies normally need to make even before they know the full extent of
their play and three, to do so in a way that is greener and more energy
efficient than traditional pipelines.
A benefit that even Altex was unaware of until they did the math.
“When
we actually crunched the numbers,” says Altex President Glen Perry.
“We were surprised to discover that it takes less energy to
transport oil by rail than it does to expend the energy to overcome the
friction of pushing it down the pipeline.”
But
perhaps the biggest boon in what CN proposes, in terms of Saskatchewan
fields, is the emphasis on transportation without any additional start
up costs; costs that would be incurred if companies had to invest in
pipeline infrastructure over the next 20-30 years, and costs that would
be incurred while they waited the 2-4 years for those new pipelines to
be built. Using their
established infrastructure that already winds its way throughout the
province, and indeed the entire country, for the simple price of a rail
car or two, companies can get their products up and moving to markets
now, when they need to the most. This
is something that could be a particular benefit to the great number of
smaller producers that
Saskatchewan
has in abundance.
It’s
an idea that EOG Resources Inc. of
North Dakota
has already looked into and has made plans to implement soon.
Developing
fields located in the U.S. portion of the Bakken Formation, of which the
Saskatchewan counterpart is said to hold at least 25% of the total oil,
EOG Resources Inc., recently found themselves in the unenviable position
of having product ready to go, and having no way to transport that
product to market. With
limited pipeline availability to be found with Enbridge’s North Dakota
System, and the cost of trucking the oil proving to be too costly, EOG
turned to BNSF, a U.S. based rail system and plans to start shipping
it’s North Dakota Bakken Shale oil by rail as early as February 2010,
allowing them to be back up in full production mode by July of this
year.
With
the simple addition of railcars, CN says it’s a service that they too
can provide to Canadian producers, with the ability to move up to 10,000
barrels a day in the very near future, and the potential to escalate
upwards to four million barrels a day.
CN's
exclusive rail access to major mines and smelters makes it a
transportation leader of copper, lead, zinc concentrates, refined metals
and aluminum.
(Photo: CN Rail)
www.cn.ca
Already
well versed in the shipment of energy products including coal, which
makes up only 5% of CN’s overall shipping portfolio, CN says if it
were to ship the equivalent in oil products it would transpose to
equal more than 625,000 barrels of crude a day.
A figure that might succeed in tempting transportation-hungry
producers, especially if heavy oil producers take it one step further,
as Altex hopes they will, and ship their product diluent free.
A step which when implemented, could save them an additional
$8-$10 a barrel in shipping costs, and a step that is crucial to
Altex’s plan for their own future pipeline development.
Standing
against the idea and the arguments that have come into play against
CN’s proposal are the long term costs associated with rail shipment
vs. pipelines, the reliability of rail service and the potential risk
for spills and their ensuing environmental damage.
One
such spill already mars CN’s record, when more that 800,000 litres
of heavy fuel oil spilled in 2005 in and around
Lake
Wabamun
an hour west of
Edmonton
. A spill which CN
recently settled to the tune of $1.8 million dollars, the bulk of
which will be directed to support the prevention of such environmental
incidents in the future.
As
to the other arguments Perry says that the reliability of the rail,
which for years has been considered inconsistent in the oil industry,
is something that will increase as dedication does.
“The
pre-conceived notion that rail is not reliable is simply not true,”
says Perry. “Their
consistent delivery of such energy products as coal and sulphur prove
that. But in the oil
industry, our spotty use of it has meant that CN has simply applied
the bulk of their assets to meet their other business demands, and oil
hasn’t been that demand. As
reliability of business increases, so too will the dedication of
CN’s assets.”
As
to the long term costs, Altex being a pipeline company themselves,
still sees the need for pipelines, but says the current economic
situation means that a short term more immediate solution needs to be
put in play to get oil up and flowing, even if it’s in smaller
volumes, and “CN’s rail system is ideally situated to do it.”
Roy
Schneider a spokesman for Saskatchewan Energy and Resources says he
personally hadn’t yet heard of CN’s proposal but that he’s open
to any and all new ideas that would aid the oil industry in
Saskatchewan
. “If this is something
that CN in conjunction with the oil companies can do to ease any
transportation issues, all the power to them.”
Adding, it’s an idea he’ll start to follow with interest.
“It’s
an interesting idea,” admits Schneider, “And kind of like going
back in time, since this is the way we first started shipping oil.”
