Oil by rail: Canada’s way out west? – by Yadullah Hussain (National Post – July 12, 2013)

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

Even as the town of Lac-Mégantic picks up the pieces after a fatal disaster involving oil-laden trains, there are few signs the crude-by-rail expansion will start to slow. In fact, rail is finding new pockets of opportunities and may even facilitate the transfer of Canadian crude to Asian markets – if regulations allow.

Nearly a dozen plans to accelerate oil shipments via rail to the North West United States are focused on sourcing North Dakota and Alberta oil shipments to a string of refineries dotted along or near the U.S. western coastline, according to a report by Seattle-based Sightline Institute.

“In Oregon and Washington, 11 refineries and port terminals are planning, building, or already operating oil-by-rail shipments,” Eric de Place, an analyst with Sightline Institute, said in an interview. “The projects are designed to transport fuel from the Bakken oil formation in North Dakota, but the infrastructure could also be used to export Canadian tar sands oil.”

The combined oil-by-rail projects could add up to 720,000 barrels per day — that’s more oil capacity than Enbridge Inc.’s Northern Gateway pipeline or Kinder Morgan Inc.’s Trans Mountain expansion, both of which are proposing the West Coast access for Alberta crude.

While Washington refiners typically focus on light Bakken fuel, recently there has been a concerted effort to secure more Canadian blends, including tight oil and oil sands.

“Yes, it is something you are starting to see already,” Harold York, an analyst at energy consultant Wood Mackenzie said. “Pipelines are built up. The crude is just so attractively priced in Edmonton, as a result, Washington refiners have developed their rail capacity to get more of that inland-discounted crude to their refineries.”

Last year, Washington refineries received 241,000 bpd of imported fuel of which 60% came from Canada, according to the Canadian Association of Petroleum Producers, which sees Washington’s refinery cluster as a promising destination for Canadian crude.

“Refineries in Washington and California need to replace their traditional sources of supply that are now declining and may represent a future market opportunity for Canadian producers,” said CAPP in its annual report published in June.

Of the cluster of refineries around Washington’s Puget Sound lowland areas, two receive oil-by-rail shipments, and the remaining three are planning new facilities.

“Three proposals for Grays Harbor would move oil along the Washington coast. And on the Columbia River, one port terminal is already receiving oil-by-rail shipments, while officials at Vancouver are planning by far the region’s largest facility,” Mr. de Place said.

In April, Tesoro Corp. and Savage Co. formed a joint venture to develop and operate a new 120,000 bpd crude-by-rail unloading and marine loading facility at the Port of Vancouver, Wash., for an investment of approximately US$100-million.

While the companies have publicly stated capacity of 120,00 bpd, their official submission to the City of Vancouver’s Land Use Planning department shows a plan for 360,000 bpd.

With access to rail and existing marine infrastructure, the Port of Vancouver is ideally positioned to serve as a hub for the distribution of North American crude oil to West Coast refining centers, the companies said.

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