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Go Your Own Way – Rail Loading Terminals in Western Canada – Part 2

With TransCanada repurposing their Mainline gas pipeline to ship crude from Western Canada to the East and two new unit train crude loading terminal projects underway in Edmonton and Hardisty, competition between rail and pipelines is intensifying. The scale of the investments being made by companies such as Kinder Morgan and Gibson Energy suggests that producers and refiners believe that crude by rail is here to stay. Today we continue our review of rail terminal infrastructure developments in Western Canada.

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 we asked if the cost of bitumen by rail transport can compete against pipeline delivery when both options are available to producers? We concluded that rail capacity will not be needed if and when pipeline projects on the drawing board are completed but may be needed in the meantime. And there is no clear answer yet to the cost comparison between rail and pipeline although rail terminal developers appear to believe that they have an edge over pipelines. In the second episode we began a survey of the rail terminals currently developed or being planned and built to load and unload heavy crude (see Go Your Own Way Alberta Rail Load Terminals). We looked at developments by NuStar, PBF, Canexus, Gulfport and Statoil. Today we continue the survey with a look at developments planned by Gibson Energy, Altex Energy and Kinder Morgan/Keyera.

Gibson Energy and US Development Group

Gibson is one of the largest truck haulers of oil, natural gas liquids, propane, butane, condensate and refined products in North America. The company celebrates its 60th anniversary this year. Gibson built 5 truck to rail transloaders in Western Canada during 2012 and these are shipping about 6 Mb/d of heavy and light crude. The heavy crude is being shipped in railcars with 20 percent diluent via CN railroad to a rail to barge offloading facility at the Port of Nachez, MS on the Gulf Coast for oil sands producer Southern Pacific. Gibson has stated that by the end of 2013 the Nachez terminal will be expanded to handle unit trains.

Separately, Gibson has two large terminals with 4.2 MMBbl of crude storage at the Edmonton and Hardisty Western Canadian crude gathering hubs. The Gibson Edmonton terminal has access to both Canadian Pacific (CP) and Canadian National (CN) railroads but the company does not appear to be loading crude onto rail there currently. Hardisty is the origination point for three major crude pipelines that ship crude out of Western Canada to the US – namely the TransCanada Keystone, the Enbridge Lakehead system and the Spectra Express pipeline. Hardisty is also linked by pipeline to oil sands production regions to the north including Fort McMurray (see red lines on map below). Gibson is building additional crude storage at Hardisty (2.3 MMBbl) and has just announced a major investment in a rail terminal nearby.

Source: Gibson Energy Investor Presentation June 2013 (Click to Enlarge)

That rail terminal at Hardisty (announced August 6, 2013) is being developed in partnership with US Development Group. The terminal will be located on the Canadian Pacific (CP) railroad that provides access to crude markets throughout North America. The “Hardisty Rail Terminal” will handle multiple grades of crude with an initial capacity of 140 Mb/d. Crude will be transferred from the Hardisty terminal via a 3 mile pipeline that Gibson will build. The rail terminal will be capable of handling two unit trains a day with up to 120 railcars each and will consist of a fixed loading rack with 30 railcar loading positions, plus a unit train staging area and loop tracks capable of holding up to five unit trains. The terminal is targeted to begin operation in the first quarter of 2014. Capital investment for the construction has been secured by term commitment to 100 Mb/d from four customers. Gibson’s June investor presentation estimates unit rail transport costs from Hardisty to the US Gulf at $14-$17/Bbl and compares that to a pipeline cost of $7-$11/Bbl. The Hardisty rail terminal is being fed entirely by pipeline crude, which suggests that unless they develop a diluent recovery unit (DRU), all the crude shipped will be pipeline grade “dilbit” crude that is typically diluted with 28 percent diluent. Dilbit crude can be shipped by rail without special tank cars or loading equipment. If some or all of the diluent is removed first by a DRU, the “payload” of heavy bitumen crude increases but special heating equipment and insulated rail cars are required.

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