Oil producers eye Arctic backup plan as pipelines face uncertain future – by Claudia Cattaneo (National Post – November 1, 2012)

The National Post is Canada’s second largest national paper.

Oil producers worried about pipeline bottlenecks and the future of proposed pipelines to the U.S. Gulf Coast and Canada’s West Coast are taking a serious look at an Arctic backup — the Port of Churchill in northern Manitoba — to get their oil to tidal water.

Discussions are quietly underway between Calgary’s oil community, Canada’s only Arctic seaport, railway companies, and refiners on the East Coast and the Gulf Coast, as well as in Europe, to collect unrefined oil by rail from fields across Western Canada, get it to the port on the west coast of Hudson Bay and load it on Panamax-class tankers.

“We think we can provide them with a competitive cost advantage to position [oil] to multiple destinations for a short period of time each year,” said Jeff McEachern, the Winnipeg-based executive director of Churchill Gateway Development Corp. who has been making frequent trips to Calgary during the past six months to fine-tune the strategy.

“We are in pretty close proximity to where the oil is being produced to get it to tidal water. It’s not a full solution, but it has an economic advantage to it and a producer is always looking for any economic advantage they can get.”

The deep-water port is motivated to make it work. It has been a major export point for Western Canadian grain since 1929, but it’s looking to diversify its customer base following this year’s dismantling of the Canadian Wheat Board, its dominant customer.

The strategy’s biggest challenges are the port’s limited capacity and a short ice-free season — from July until the end of October.

However, the port can ramp up quickly to ship oil by using infrastructure already in place to ship grain. Oil shippers can extend the export season by using icebreakers and taking advantage of changing weather patterns that are extending ice-free periods.

The option can ease pipeline bottlenecks that are depressing the prices of Canadian crudes and fits with producers’ desire to develop multiple markets.

A decision on whether to move forward is expected in January. The first oil shipment could be launched in mid-to-late July and the goal is to ship two million barrels during the 2013 ice-free season to test the model.

For the rest of this article, please go to the National Post website: http://business.financialpost.com/2012/10/31/oil-producers-eye-arctic-backup-plan-as-pipelines-face-uncertain-future/