Analysis: Late to oil-by-rail, Canada faces risks in rush to catch up

Fri Jul 12, 2013 12:55pm EDT
 
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By Nia Williams and Kristen Hays

CALGARY/HOUSTON (Reuters) - For the last three years, Canada has lagged the United States in using its rail system to haul crude oil, hindered by a lack of loading terminals and a shortage of specially built rail cars that reheat viscous oil sands crude.

Now it's on the brink of catching up. Over the next 12 months, producers like Cenovus Energy Inc (CVE.TO: Quote) and logistics firms like Gibson Energy Inc GEI.TO will load up mile-long dedicated trains with ultra-heavy bitumen oil and move them thousands of miles in heated and coiled rail cars that eliminate the need to dilute the crude for pipeline shipments.

Yet they are opening up a new phase in the oil-by-rail boom at a moment of deepening uncertainty. An oil-train derailment that killed 50 people in Quebec has cast a shadow over the controversial practice and could raise new hurdles.

For the moment, the handful of new projects to potentially quadruple the amount of oil sands crude shipped by rail are moving ahead. Exports could soon rival U.S. shale oil rail shipments, currently three times greater than Canada's.

James Cairns, vice president of petroleum and chemicals at Canadian National Railway Co CNR.TO, said in Calgary this week that companies were moving at "breakneck speed" to overcome nationwide shortages of both infrastructure and rolling stock.

"In my 26 years in the rail business I have never seen this much massive investment in CN lines by our customers to get their products onto our railways," Cairns said. CN, the nation's largest carrier, expects to more than double last year's 30,000 carloads of raw bitumen and crude this year.

It is still too early to say how the derailment in the small town of Lac-Megantic will affect the oil-by-rail trend. The runaway 72-car oil train derailed and exploded in the center of the town in the worst North American rail disaster in two decades. The company that operated the train said the sole engineer on duty failed to adequately secure it.

Environmentalists and local groups have already expressed deep concerns about oil trains crisscrossing the continent, mirroring the vigorous campaigns against new pipelines.   Continued...

 
A view of the Canadian Nationals (CN) Thornton Railroad Yards in Surrey, British Columbia, June 21, 2012. REUTERS/Andy Clark