The terminal in Bruderheim, Alberta, which will be expanded to 100,000 bpd by the second half of next year as a second supply pipeline is connected, initially will load only “dilbit” oil, or heavy bitumen crude from Canada’s oil sands region mixed with 30 percent light condensate, Gary Kubera, chief executive of privately owned Canexus, said in an interview.
The facility is the first of a half dozen or so Canadian projects that have emerged over the past year to help carry more of the booming production from the Alberta oil sands by rail as producers seek alternatives to congested export pipelines. Shipping by rail is more costly, but also more flexible.
At present, the oil sands are only served by manifest trains hauling smaller loads, a less cost-effective mode of transport, but around 550,000 bpd of unit-train crude-by-rail projects - terminals that can load up to 120 rail cars a day - are due to start up in Western Canada by the end of 2014.
The Canexus terminal, which has been shipping 25,000 to 30,000 bpd of crude from Bruderheim on manifest trains since 2012, has already secured customer commitments for about 35 percent of its capacity. The company expects 70 to 80 percent of capacity to be under contract by the end of the year.
“The first unit train is set to run by the end of November,” Kubera said.
“We expect unit trains will be going to the East, West, Gulf coasts. There is a lot of investment going into refineries to allow them to move crude by rail.”
He declined to give exact details of where Bruderheim shipments will go in the United States, saying it would be the decision of the shippers and their customers.
Extra rail capacity could help limit discounts on bottle-necked oil sands crude, which widened to as much as $40 per barrel below the West Texas Intermediate benchmark earlier this year, cleaving a hefty chunk out of producers’ profits.
Canadian producer MEG Energy says the terminal allows MEG to ship all of its 30,000 to 35,000 bpd of production by rail to its main market in the U.S. Midwest, as well as the Gulf Coast and Eastern Canada.
“With the massive rail network on the continent it could be to any potential refinery that has interest in that feedstock and has offloading facilities,” spokesman Brad Bellows said. “We have seen a lot of interest, particularly from the Gulf Coast.”
The initial supply pipeline into Bruderheim will run from MEG’s newly operational, 900,000-barrel Stonefell storage terminal, with other producers also able to move crude through that facility.
Cenovus Energy Inc is also signed up as a shipper from Bruderheim, which is served by Canadian Pacific and Canadian National railways.
Cenovus will start moving its Cold Lake crude blend from the terminal once the second supply pipeline is connected to its projects in northern Alberta next year, and once its own heated and coiled rail cars are delivered in the latter part of 2014.
“We are targeting moving about 30,000 bpd of our oil production by rail by the end of 2014,” a Cenovus spokeswoman said. “That will be through the Bruderheim terminal, with some also coming from Saskatchewan and southern Alberta.”
The unit trains at Bruderheim will use heated and coiled rail cars even for dilbit to prevent it becoming more viscous in bitterly cold Canadian winter temperatures.
Heated and coiled cars are essential for transporting raw bitumen, which Kubera said the terminal could eventually start shipping depending on demand, in a move that should boost profits for producers.
“We think in the long term that is the one model that will allow crude by rail to compete with pipelines. Raw bitumen or near-raw bitumen is the better option for crude by rail,” he said.
Pipelines are currently seen as the cheapest method of transporting crude oil but Canadian producers have to dilute their tar-like bitumen with around 30 percent condensate in each barrel - which is more expensive than crude - to allow it to flow through pipes.
Recent research by Sandy Fielden, analyst at consultants RBN Energy, suggested moving raw bitumen on unit trains from Alberta to the Gulf Coast offers a greater netback, $65 per barrel, compared with $51.27 per barrel for shipping dilbit via pipeline.
At the moment, however, the heating equipment needed to load and unload raw bitumen from unit trains is absent from terminals and refineries across North America.
“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,” Fielden wrote in a note. (Reuters)