January 24, 2014 / 8:14 PM / 4 years ago

UPDATE 1-Kansas City Southern says crude-by-rail volumes soared in 2013

* 2013 crude shipments up 51 pct despite 8 pct decline in Q4

* Pipeline startups replaced Bakken shipments, growth expected in Canadian crude

By Kristen Hays

HOUSTON, Jan 24 (Reuters) - Kansas City Southern is “working on several new opportunities” to move Canadian heavy crude oil via rail to the U.S. Gulf Coast region, a top executive told analysts on Friday.

The regional railroad operator’s shipped crude volumes rose 51 percent in 2013 compared with the prior year, despite a pullback in shipments of North Dakota Bakken crude to the Gulf region, Patrick Ottensmeyer, executive vice president of sales and marketing, said on a quarterly earnings call.

The company expects shipments of Canadian heavy crude to increase in 2014 and beyond, he said, as specialized offloading equipment is installed at various destination points, such as Port Arthur, Texas, New Orleans and Baton Rouge, Louisiana.

“We are working on several new opportunities throughout the Gulf region,” he said.

On Thursday, safety officials in Canada and the United States urged regulators to take steps aimed at preventing fiery crashes of trains carrying crude oil, after a string of recent accidents.

Kansas City Southern’s results missed quarterly profit estimates on weakness in its energy business, primarily a drop in utility coal shipments.

While the company’s 2013 crude shipments jumped overall, they declined by 8 percent in the fourth quarter as refiner demand for North Dakota Bakken crude waned in the Gulf region.

Pipeline startups brought more light-sweet Texas and Oklahoma crudes to the market at a lower cost, siphoning demand to move it via rail from West Texas and North Dakota.

However, Kansas City Southern expects Canadian heavy crude shipments to the region to grow, executives said.

“Our longer-term opportunity is going to be driven more by the heavy crude coming from Canada, which did increase significantly during the quarter, but not enough to offset the decline in Bakken and West Texas” crude shipments, Ottensmeyer said.

The railroad remains committed to a crude terminal operation in Port Arthur that will handle a 120-car train per day of Canadian heavy crude, he said.

Port Arthur is home to three major refineries, including Motiva Enterprises’ 600,000 barrels-per-day plant - the largest in the United States - and Valero Energy Corp’s 290,000 bpd refinery.

Kansas City Southern has not disclosed its partner in the Port Arthur offloading project, but Valero has said publicly that the company wants to increase Canadian crude supplies at its refinery there.

Ottensmeyer said on Friday that once heating equipment needed to offload undiluted bitumen is permitted and built in Port Arthur and the other sites, more opportunities to move Canadian crude to the region will open up.

“We still expect to deliver crude oil to Port Arthur this year,” he added.

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