April 23, 2014 / 5:14 PM / 3 years ago

For Canada's oil-rail terminal firms, muted glee over Keystone

5 Min Read

CALGARY, Alberta, April 23 (Reuters) - The handful of firms racing to build oil train terminals in Western Canada should be rejoicing over the latest delay to TransCanada's Keystone XL oil pipeline, but many have troubles of their own.

Companies including Canexus Corp and Gibson Energy Inc are building terminals that will pump Western Canadian crude on to mile-long trains bound for U.S. refiners. In theory, these firms have the most to benefit from a months-long delay in U.S. approval to the 1,200 mile (1,900 km) pipeline that would link Canadian oil fields to refiners on the U.S. Gulf coast.

Canexus, Gibson Energy, whose shares hit an all-time high on Tuesday, and others have moved over the past two years to position themselves as the quicker, although costlier, option for shipping Canadian crude across North America.

But many are struggling to get their terminals up and running due to chronic labor shortages in Alberta, a harsh winter and cost overruns. That means they may not be able to fully exploit the growing shortage of pipeline capacity, as they had hoped.

To be sure, some like Ceres Global Ag Corp are seeking to press their advantage after Washington said on Friday it would postpone a final decision on the Keystone XL line, likely until after U.S. congressional elections in November.

While the firm's first crude terminal, a 25,000 bpd facility in Northgate, Saskatchewan, is nearly a year behind schedule, it hopes the Keystone news will flush out future customers that could support its eventual expansion to 70,000 bpd.

"Our sales team will be out in Calgary next week and we will be testing that," Michael Detlefsen, president and chief executive officer, told Reuters. "The prospective pipeline delays present a three- to five-year window in which oil-by-rail could provide a reasonable alternative to the pipelines."

Under Pressure

With Western Canadian production expected to more than double to 6.6 million bpd by 2030, producers are desperately seeking alternatives to congested export pipelines.

An estimated 1.1 million bpd of rail-terminal capacity will be available in Western Canada by year's end, but much of that will depend on already-delayed terminal projects sticking to construction schedules.

With much of the industry struggling to execute existing projects, industry sources see little opportunity for midstream companies to take full advantage of the Keystone delay.

Canexus Corp, a chemical manufacturing and transloading company, originally planned to be shipping 50,000 bpd of crude by November but in March was only loading 12 to 15 unit trains per month, roughly 24,000 bpd. Its Bruderheim, Alberta, facility is also scheduled to be shut down for up to 90 days from June to finish construction work.

Canexus did not respond to requests for comment.

Its shares are down nearly 25 percent since the start of 2014 following huge cost overruns on the Bruderheim terminal and the departure of chief executive officer Gary Kubera. But they have risen 6 percent since Friday's news.

Privately owned TORQ Transloading Inc's 168,000 bpd Kerrobert, Saskatchewan, terminal will be more than a year overdue, and Gibson's 120,000 bpd Hardisty, Alberta, unit train terminal has missed its first quarter 2014 start date by several months.

TORQ did not respond to requests for comment, while Gibson declined to comment.

Minnows Vindicated

One other contingent of Canadian oil companies is poised to take advantage of Keystone's delay: some of Alberta's smaller producers, having lost out to bigger players in the race to sign up for major new pipeline projects, were among the first to start transporting oil cargoes by rail.

These smaller firms, which do not produce enough crude to fill dedicated oil trains carrying around 50,000-70,000 barrels, continue to load their crude on to manifest trains, which carry mixed cargoes, even though the economics are not as attractive.

Oil sands giants such as Cenovus Energy Inc are also loading at manifest terminals but are keen to wring more value from rail shipments by using oil trains.

Connacher Oil and Gas Ltd started moving crude by rail four years ago to avoid the risk of pipeline outages. It now ships up to 90 percent of its 13,000 bpd of production via rails.

"I sit back and am pleased we have been in rail for this long, but I'm also pleased we're not getting into it today," said Jesse Beaudry, Connacher vice president of marketing and transportation.

"A lot of companies have already established themselves in the best terminals, and if you want to get into those you have to pay incrementally more." (Editing by Jonathan Leff and Ross Colviin)

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