Canadian Railroads > TD: "oil by rail is not necessarily a good thing"

The well respected TD Economics unit weighs in on the issue of shipping oil out of the Alberta area basins in western Canada. The unit of Toronto Dominion notes that the pipelines are full, rail is an expensive alternative, and Asian buyers are willing to pay high prices for oil and natural gas. Canadian Pacific has enjoyed a significant bump in business hauling oil while shippers desperately seek alternatives. reports say Canadian National has even explored a shipping venture via Hudson's Bay, using a short line connection at the end. CN denies that, however.

In the past few weeks the issue of oil exports has risen to national prominence from a previously regional issue. The original players were the government of British Columbia (we want any pipes to be safe, and produce an economic benefit to the people of BC), the First Nations (same, but some bands oppose any pipeline for any reason, and others are opposed to any drilling), and the oil companies.

The new wrinkle is that this has become a national issue. Many Canadians resent what they see as selling oil to the United States at a significant discount to world prices. The (also) clogged US pipeline system creates a cost to Canadian shippers. Under current law, imposing a pipeline on First Nations and BC would be impractical and probably not doable.

For now, it looks like CP will continue to enjoy a lucrative trade in hauling oil.


http://business.financialpost.com/2012/12/17/oil-industry-faced-with-serious-challenge-as-pipelines-fill-up-td-warns/

Maybe things are different in Canada (they often are), but analysts in the U.S. expect rail to continue to handle about 40% of the oil from the Bakken fields. Reason is that trains give producers flexibility to look for the best prices, and that can sometimes (but not always) compensate for the higher transport cost. Rail is also faster than pipelines, meaning less inventory in transit.

shoretower Wrote:
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> Maybe things are different in Canada (they often
> are), but analysts in the U.S. expect rail to
> continue to handle about 40% of the oil from the
> Bakken fields. Reason is that trains give
> producers flexibility to look for the best prices,
> and that can sometimes (but not always) compensate
> for the higher transport cost. Rail is also
> faster than pipelines, meaning less inventory in
> transit.

Definitely true, although the cost of shipping by rail seems to exceed pipe costs in some areas by a factor of 2.5x to 3x. I think the Delta project used $15 a barrel as the cost of rail transport.

But pipes aren't available, and won't be available, so if people want oil, they'll pay to have it shipped. That's the problem the Canadians have right now. No capacity in the pipelines, no expectation of new capacity in the next 2-3 years at a minimum, so you're held hostage.

The problems gradually work out in the US as the Seaway pipeline has no been reversed, bringing the spread of WTI to Brent about a buck tighter by some accounts. There are two more reversals planned for other lines, and a Seaway second pipe is already in the materials ordering stage.

Since oil tends to be fungible within a grade (light sweet = light sweet from another well), there's a lot of trading and deal making. But, not enough pipes in the right places. There are rail lines, however. <G>

Lackawanna484 Wrote:
-------------------------------------------------------
> The well respected TD Economics unit weighs in on
> the issue of shipping oil out of the Alberta area
> basins in western Canada. The unit of Toronto
> Dominion notes that the pipelines are full, rail
> is an expensive alternative, and Asian buyers are
> willing to pay high prices for oil and natural
> gas. Canadian Pacific has enjoyed a significant
> bump in business hauling oil while shippers
> desperately seek alternatives. reports say
> Canadian National has even explored a shipping
> venture via Hudson's Bay, using a short line
> connection at the end. CN denies that, however.
>
> In the past few weeks the issue of oil exports has
> risen to national prominence from a previously
> regional issue. The original players were the
> government of British Columbia (we want any pipes
> to be safe, and produce an economic benefit to the
> people of BC), the First Nations (same, but some
> bands oppose any pipeline for any reason, and
> others are opposed to any drilling), and the oil
> companies.
>
> The new wrinkle is that this has become a national
> issue. Many Canadians resent what they see as
> selling oil to the United States at a significant
> discount to world prices. The (also) clogged US
> pipeline system creates a cost to Canadian
> shippers. Under current law, imposing a pipeline
> on First Nations and BC would be impractical and
> probably not doable.
>
> For now, it looks like CP will continue to enjoy a
> lucrative trade in hauling oil.

About 80% of the Crude Oil that Canadian Pacific hauls originates in the US portion of the Bakken Oil fields, some of this is exported to Canada (Irving Oil at St. John, NB), and some passes through Canada in transit from North Dakota enroute to the US East Coast. Almost 100% of the remaining oil that CP hauls originates in Saskatchewan in the Canadian portion of the Bakken Oil Field. To this point CP is a very minor player in Crude Oil from the Alberta Tar Sands or other Canadian sources such as the Montney Shale. Virtually all of the Crude Oil originating from the Tar Sands that is rail hauled is by CN. Sometime next year CN will begin serving a loading terminal in the Canadian Bakken at Cromer, SK.

The first major oil train derailment on CP's former D&H line along Lake Champlain in upstate NY could be a real game changer. Very few environmental activists in the US understand that one of the consequences of (over)protecting the Ogalala Aquifer in Nebraska is increasing the risk to Lake Champlain.

Risks (both real and perceived) from oil and gas production are a knife-edge issue in NY at present. Even a modest sized derailment into this water body could have far ranging political consequences.

march_hare Wrote:
-------------------------------------------------------
> The first major oil train derailment on CP's
> former D&H line along Lake Champlain in upstate NY
> could be a real game changer. Very few
> environmental activists in the US understand that
> one of the consequences of (over)protecting the
> Ogalala Aquifer in Nebraska is increasing the risk
> to Lake Champlain.
>
> Risks (both real and perceived) from oil and gas
> production are a knife-edge issue in NY at
> present. Even a modest sized derailment into this
> water body could have far ranging political
> consequences.

That's a huge risk, no question about it.

Farther south, in the Binghamton area, the line passes through the Susquehanna and Delaware River basins. Both rivers are sources of drinking water for major cities.

Governor Cuomo would ban shipments "until a comprehensive study is completed" and, like the fracking study, it would never quite be ready for release.

march_hare Wrote:
-------------------------------------------------------
> The first major oil train derailment on CP's
> former D&H line along Lake Champlain in upstate NY
> could be a real game changer. Very few
> environmental activists in the US understand that
> one of the consequences of (over)protecting the
> Ogalala Aquifer in Nebraska is increasing the risk
> to Lake Champlain.
>
> Risks (both real and perceived) from oil and gas
> production are a knife-edge issue in NY at
> present. Even a modest sized derailment into this
> water body could have far ranging political
> consequences.


The people of New York seem to think that electricity comes from a light switch, will always be available and will always cost next to nothing.

Personally, I have nothing against letting 'em all freeze in the dark.

BobE

BobE Wrote:
-------------------------------------------------------
> The people of New York seem to think that
> electricity comes from a light switch, will always
> be available and will always cost next to nothing.

http://tywkiwdbi.blogspot.ca/2012/04/map-of-us-residential-electricity.html

march_hare Wrote:
-------------------------------------------------------
> The first major oil train derailment on CP's
> former D&H line along Lake Champlain in upstate NY
> could be a real game changer. Very few
> environmental activists in the US understand that
> one of the consequences of (over)protecting the
> Ogalala Aquifer in Nebraska is increasing the risk
> to Lake Champlain.

Building the Keystone XL Pipeline no matter what the route will be only a temporary solution. Production increases in the next few years will quickly saturate the Gulf Coast Refineries. The permanent solution that likely will be follow will be to sell the Oil on the World market. That will push the price back up.

SOO6617 Wrote:
-------------------------------------------------------
> march_hare Wrote:
> --------------------------------------------------
> -----
> > The first major oil train derailment on CP's
> > former D&H line along Lake Champlain in upstate
> NY
> > could be a real game changer. Very few
> > environmental activists in the US understand
> that
> > one of the consequences of (over)protecting the
> > Ogalala Aquifer in Nebraska is increasing the
> risk
> > to Lake Champlain.
>
> Building the Keystone XL Pipeline no matter what
> the route will be only a temporary solution.
> Production increases in the next few years will
> quickly saturate the Gulf Coast Refineries. The
> permanent solution that likely will be follow will
> be to sell the Oil on the World market. That will
> push the price back up.

Yes, and that circles back to "how do we get this oil from deep inland in the US and Canada to the ports?"

The oil industry screamed that double hull tankers (think Exxon Valdez aftermath) would sink the industry. It won't be a lot different with new improved blow out protectors, more heavily armored pipelines, catch basins, etc. They'll get to that point, eventually, and with a cost.

I wonder if "Champ" (the rumored Lake Champlain sea monster) is an endangered species?

Is there any restricted speed limit on the oil trains or do they operate at general freight train speeds?

It may make sense for a 40mph speed limit to limit spills in the inevitable derailment - but who is going to make the railroads do this?