Go Your Own Way – How Rail Beats Pipeline Transport for Heavy Crude From Alberta to the Gulf

There has been a lot of market interest and investment in moving Canadian heavy crude from Alberta to the Gulf Coast by rail in the face of competing pipeline routes that will come online in the next two years. Our analysis indicates that rail can beat the pipelines but that the infrastructure to achieve the necessary economies of scale are not yet in place. Today we provide a worked example of the cost alternatives.

Recap so Far

This series started by asking two questions – is rail capacity needed to supplant a shortfall in pipeline space and can shipping bitumen by rail compete with pipelines on cost (see Go Your Own Way – The Rail vs. Pipeline Bitumen Challenge). Next we surveyed in detail the rail terminals being built in Alberta (see Go Your Own Way Alberta Rail Load Terminals Part 1 and Part 2). In the fourth and fifth episodes we surveyed 8 rail terminals on the CN direct network that are able to handle heavy crude today or plan to be able to handle heavy crude in the future on the Mississippi Gulf Coast. Episode six covered operating or planned terminals further east on the Texas Gulf Coast. Episode seven summarized rail load and unload capacities, which are roughly matched. 

Two important points emerged from the detail. The first is that loading railbit or bitumen with low levels of diluent requiring heating equipment is currently limited to 25 percent of the rail capacity. The second is that unit train load and unload facilities do not generally have equipment to handle railbit. That means at the moment it is not possible to ship raw bitumen or railbit (17 percent diluent) on unit trains from Alberta tot eh Gulf Coast. In this episode we do the detailed math to compare the transport costs of moving bitumen by rail or pipe using more or less diluent.

Transport Alternatives

We reviewed the transport options last time but here is a quick recap to help understand what follows. Both refiners and shippers would prefer to use less diluent to move bitumen to market if they could. Bitumen can be made to flow over shorter distances when mixed with less than the pipeline specification of about 28 percent diluent but that flow may require a heated pipeline or railcar in winter temperatures. A common blend of bitumen and diluent used for rail transport is called “railbit”, which contains 17 percent or less diluent. Railbit can be transported by rail but shippers have to use rail tank cars with insulation and heated steam coils to keep the crude from “setting up” (becoming too viscous to transport) in cold temperatures. A third alternative to dilbit or railbit is to move “raw” bitumen with very little or no diluent added. Since some diluent is typically added to bitumen to move it from the wellhead to a pipeline or to a terminal by truck, raw bitumen is not usually transported. However, it is possible to remove diluent from bitumen prior to transportation using a diluent recovery unit (DRU).

Bitumen Transport Costs

The three different blends of bitumen described above all have different transport options and costs. What follows is a worked through calculation for each of these alternatives in turn using representative cost and pricing estimates. The key factor to bear in mind is that in order to compare apples to apples, we will always use the total cost of shipping one barrel of bitumen. The comparison is for three different transport options - pipeline, manifest rail tank car and unit rail tank car. Manifest rail is estimated to be $3/Bbl more expensive than unit rail. Manifest trains are made up of batches of railcars shipped with other freight that take longer to travel. Unit trains are over 100 car dedicated crude convoys that travel more efficiently as a unit.