Crude oil rides the rails as pipeline projects flounder

A Rail America - Southern Ontario Railway freight train heads toward the Imperial Oil refinery at Nanticoke, ON.

Credits: Brian Thompson/Brantford Expositor/QMI Agency


OTTAWA — With the fate of several controversial pipelines in question indefinitely, rail has quietly become the alternative mode of transporting oil across North America.

Until 2010, the Canadian National Railway never considered adding to crude to the products it ships across the continent. Last year CN moved 5,000 car loads — a car holds about 650 barrels — a number that’s expected to rise to 30,000 by the end of this year and double to more than 60,000 by the end of 2013.

Mark Hallman, spokesman for CN, said insufficient pipeline infrastructure across North America has prompted rail to be used effectively as a stop-gap.

“Rail has been able to step in where pipeline capacity isn’t there,” he said. “Rail won’t replace pipelines, but it certainly is an effective, easy way to take crude to markets.”

Development at the Bakken Formation — vast oil fields below Saskatchewan and North Dakota — for example, has outpaced that of pipeline construction.

Canadian Pacific Railways spokesman Ed Greenberg said rail and energy sectors have been working together and both sides have been pleasantly surprised.

“The flexibility that rail provides energy producers is the ability to quickly access a broad range of markets at reasonable terms and is a good complement to traditional pipeline offerings,” Greenberg said.

Even taking into account the cost of construction, pipelines remain a cheaper method of transport than rail. But David Tyerman, managing director of investment banking firm Canaccord, said the role of rail in the future of oil transport should not be underrated.

“Two things have become clear: One is that crude moves faster by rail. If you need it moved quickly, rail is a solution,” he said. “And two: By rail, crude can go anywhere the rails go.”

Still, rail will never overtake pipelines when it comes to moving crude.

“There’s a place for rail,” Tyerman said. “How big? Nobody knows. But it’s certain a portion will likely continue to be moved with rail.”

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