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Stunned by Enbridge Inc.’s Kalamazoo River oil spill in 2010 that disrupted its sole market access in Saskatchewan, Crescent Point Energy Corp. found an unlikely ally: an agriculture company.
Toronto-based Ceres Global Ag. Corp owns a stake in Southern Stewart Railway set up to transport grain from Stoughton, Sask., to Regina, from where it connects to other lines. But floods over the past two years had wrecked its agriculture business, and the province’s burgeoning oil production seemed like a good way to bring its trains back into active duty.
The arrangement took off. Within the space of a year, SSR was shipping nearly 30,000 bpd of oil out of Saskatchewan, helping Crescent Point and others escape the heavy oil discounts plaguing Canadian producers.
“The Kalamazoo river leak was a bit of an eye opener as a lot of our production is in Saskatchewan and we are not blessed with the number of pipeline alternatives they have in Alberta, so we really had one way of getting our crude to the market, and that’s the Enbridge mainline system,” said Trent Stangl, vice-president at Crescent. “The SSR has been a key part of our rail plan for southeast Saskatchewan.”
Saskatchewan producers desperately need these small-scale solutions for the big problem of pipeline capacity constraints.
Encouraged by its first foray into oil shipment, Ceres is now roping in bigger players such as Warren Buffett’s Burlington Northern Santa Fe Corp. railway company for its second ag-and-oil venture.
“We think we know logistics and transportation pretty well. And there are synergies between ag and oil,” Michael Detlefsen, president of Ceres said.
The company starts building a logistics hub in Northgate, Sask. next month, featuring two high-efficiency rail loops, each capable of handling unit trains of up to 120 railcars, to be served by BNSF Railway’s network. The facility will be shipping 15,000 to 20,00 bpd of Saskatchewan oil in the first phase, ramping up eventually to 70,000 bpd.
“We settled on Northgate as it was one of the few places where the Burlington Northern railway came into Canada and because of our oil experience on the SSR, we said ‘okay, we are not just going to do grain, and we will add oil supply to the mix’.”
The company is in talks with six groups with oil operations in Saskatchewan interested in transporting oil to U.S. refineries and tidewater.
Meanwhile, Twin Butte, an intermediate producer, which ships 15% of its oil via rail, will complete construction of a facility at Lashburn, Sask. by the second quarter, which potentially doubles its rail car shipments.
Unlike its neighbours Alberta and Northwest Territories, Saskatchewan is not exploring expensive northern pipeline proposals and sticking with a series of low-key but effective rail-based solutions.
“The reality is that options have to make economic sense,” Tim McMillan, Saskatchewan’s minister responsible for energy and resources, said in a telephone interview. “But we discount nothing. There are solutions that are happening that weren’t thought possible a short time ago. The conversion of natural gas pipeline from Western Canada to Eastern Canada when gas was $12 per gigajoule was not an option. Today it looks a possible and effective option for all parties.”
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