At least 5 large-scale rail terminals are being planned or constructed in the heavy oil sands region of Western Canada to increase the volume shipped to the US by rail from about 100 Mb/d this year to more than 550 Mb/d by 2015. Current shipments are mostly small manifest batches but the new terminals will load unit trains with 50 MBbl plus of crude. Successful development of large loading terminals in Western Canada requires the build out of similar scale unloading terminals close to heavy oil demand in the Gulf Coast region. Today we review destination terminal developments.
If you are new to the topic of moving heavy Canadian crude (bitumen) by rail you can bring yourself up-to-speed by looking at previous posts on growing Canadian bitumen production (see Heat it! Bitumen Economics Part 1) and the options for moving heavy bitumen crude by rail – including various levels of dilution with light hydrocarbons known as “diluent” (see Heat it! Bitumen Economics Part 2).
In the first episode in this series we attempted to answer two key questions that determine the fate of Canadian heavy crude shipments by rail (see Go Your Own Way – The Rail vs. Pipeline Bitumen Challenge). First - is rail capacity needed to supplant a shortfall in available pipelines now or in the future? Second can the cost of bitumen by rail transport compete against pipelines?
When we added up the likely demand for transport capacity and compared that against the supply of pipeline + rail capacity, we concluded that there would be more than enough capacity available. Thus if you assume that pipeline transportation is cheaper than rail, it implies that the rail capacity is not needed if and when pipeline projects on the drawing board are completed. But is that accurate? Unfortunately there is no clear answer yet to the cost comparison between rail and pipeline although rail terminal developers believe they have an edge over pipelines. In the second and third episodes we surveyed the rail terminals currently being planned and built to load heavy crude in Western Canada (see Go Your Own Way Alberta Rail Load Terminals Part 1 and Part 2).
The largest market for Western Canadian heavy crude is several thousand miles away from the production areas at US Gulf Coast refineries configured to process similar grades from Mexico and Venezuela (see Production Stampede – Where Will Canadian Oil Production Go?). One way to get the heavy bitumen crude to market by pipeline is to dilute it by adding up to 30 percent by volume of lighter hydrocarbons (diluent) to make a “dilbit” crude – a costly alternative. But there is another alternative to moving bitumen by rail. Shippers also have the option to use special insulated rail tank cars that can be heated to flow the crude at high temperatures. These tank cars hold less volume (~550 Bbl) than “regular” tank cars (~650 Bbl) but can move bitumen with a reduced diluent content (17 percent – railbit) or no diluent at all (raw bitumen). A number of rail offloading terminals on the Gulf Coast are being built out to handle raw bitumen so as to improve the economics of crude-by-rail shipments to the US Gulf versus pipeline alternatives. We will get into the economics later in this series but today we start with a review of the largest offloading terminal operation being built so far in Mobile, AL.
Canadian National Railroad
The biggest player in rail terminal build out on the Gulf Coast for heavy Canadian crude is the Canadian National (CN) railroad. CN is the only railroad that has access into the heart of the oil sands production region in Northern Alberta. The CN network also extends directly south and East from Western Canada through the Midwest and down to New Orleans and Mobile Alabama. That happy coincidence of direct network connections between Canadian producers and the large heavy crude refining market in and around the Mississippi delta gives CN an advantage they are anxious to cement. To this end, they have encouraged partnerships with companies such as Genesis Energy and ARC Terminals and invested in the build out of multiple terminals in the Gulf Coast region (see light green circles on the map below).
Source: CN Presentation (Click to Enlarge)
We last surveyed these rail-offloading terminals in the Mississippi Gulf Coast region back in April (see The Bakken St James Shuttle). We’ll now look more closely at the infrastructure being built out. If all goes according to plan, the largest of these terminals in Mobile, AL will be able to unload a unit train carrying heavy bitumen crude for redistribution to area refineries by the end of this year (2013).
ARC Terminals Mobile, AL
The first and (so far) largest heavy crude offloading terminal on the Gulf Coast is a combination of two separate facilities. The first is an offloading terminal at the CN rail yard in Mobile, AL and the second is three connected storage and redistribution facilities belonging to ARC Terminals LP. Arc is an independent terminal company that receives and distributes petroleum and petrochemical products via marine, pipeline, rail and truck throughout the US. The company is owned by Lightfoot Capital Partners. Back in February, ARC purchased its Mobile terminals from Gulf Coast Asphalt Company. The three separate ARC terminals have 2.5 MMBbl of storage between them, barge and ship loading and unloading docks and three rail transload spurs that will be used to redistribute incoming heavy crude to area refineries.
At the heart of the planned Mobile facility is the CN rail yard that is the unloading point for incoming crude. At present the yard has a limited capability to unload 10 rail cars at a time but CN is building out a 120 car unit train facility that is expected to be operational by the end of this year. [In the meantime, ARC are unloading rail cars at their Chickasaw Terminal that is served by Norfolk Southern railroad.] The new CN/ARC Mobile facility will have a 2400 horsepower boiler steam unit capable of heating 120 railcars from 80F to 180F in 8 hours. The railcars are heated by passing steam through coils built into their tanks. Once the crude is hot enough to flow, it will be unloaded directly into a 12 inch heat traced insulated pipeline running alongside the track. That pipeline will run from the CN rail yard, underneath the Mobile River, to the ARC storage terminals (see picture below – the red line marks the approximate location of the pipeline under the river).
To continue reading this RBN Daily Energy Post you must be logged as a RBN Backstage Pass™ subscriber.
Beginning in January 2014, full access to the RBN Energy blog archive which includes any posting more than 30 days old is available only to RBN Backstage Pass™ subscribers. In addition to blog archive access, RBN Backstage Pass™ resources include Drill-Down Reports, Spotcheck Indicators, Market Fundamentals Webcasts, Get-Togethers and more. If you have already purchased a subscription, be sure you are logged in For additional help or information, contact us at email@example.com or 888-613-8874.