Page 8 - NorthAmOil Week 12 2021

NorthAmOil PIPELINES & TRANSPORT NorthAmOil

Canadian oil sands producers

eye new rail route to Gulf Coast

NORTH AMERICA CANADIAN Pacific Railway (CP Rail) help reduce shipping costs.
announced on March 21 that it had agreed buy The CP and KCS rail networks currently con-
Kansas City Southern (KCS) in a deal worth nect in Kansas City, from which point the KCS
$25bn. The mega-merger will create the first rail railway line offers direct connection to heavy oil
network connecting the US, Mexico and Can- markets in Louisiana and Texas.
ada, though it has a lengthy regulatory review “In combination, the combined railroad can
ahead before it can be approved. Nonetheless, a offer one-railroad connectivity between Alberta
Morningstar analyst, Matthew Young, said in a and US Gulf Coast markets via these existing
note that he expected the deal to be approved. KCS connections,” IHS Markit’s director of
And oil sands producers in Canada are already transportation consulting, Paul Bingham, was
hopeful that the deal will offer them expanded quoted by the Financial Post as saying.
access to the US Gulf Coast – a major market. CP and KCS have also acknowledged that
This comes as Canadian producers continue their merger could help boost crude-by-rail
to struggle with takeaway capacity constraints, volumes on their combined network. Currently,
with the latest blow coming in the form of US oil shipments account for around 5% of revenue
President Joe Biden’s revocation of the cross-bor- at CP Rail and roughly 2% at KCS. Total energy
der permit for the Keystone XL pipeline. A law- products – including oil, chemicals and plastic New competition
suit is underway to contest Biden’s decision on and fracking sand – make up around 20% of CP’s
Keystone XL, but operator TC Energy is not par- freight revenue, according to Morningstar. to move those
ticipating, and was most recently weighing how CP spokesperson Jeremy Berry told the
best to wind up the project. And in the absence Financial Post said his company was planning barrels would be
of the additional pipeline capacity that Keystone to use a crude-by-rail facility in Alberta that
XL would have provided, Canada’s producers are removes the need to blend heavy crude for pipe- welcomed by the
having to consider other options for the future, line transportation to create a “pipeline-compet- oil sands industry
including rail. itive way of delivering Alberta energy products”
CP Rail’s deal with KCS “looks promising, by rail. “We can do this as the combination will and could help
but we’ll have to see what they actually do”, the provide for a more direct and efficient route to
Explorers and Producers Association of Can- refineries on the Gulf Coast,” he added. reduce shipping
ada’s (EPAC) president, Tristan Goodman, News of the merger comes as Canadian
was quoted by the Financial Post as saying. He crude-by-rail exports are on the rise, recovering costs.
added that CP Rail’s existing network was “not from a collapse in volumes during the first wave
terminating in a great area for us”, and that join- of the coronavirus (COVID-19) pandemic.
ing forces with another rail operator thus had a In January 2021, the country’s crude-by-rail
benefit. exports reached 195,531 barrels per day, up
Indeed, only Canadian National Railway from a low of 38,867 bpd in July 2020, but still
(CN) offers a direct route for oil producers to down considerably from January 2020, when
ship crude from Alberta to the Gulf Coast, so they averaged 403,767 bpd. This was close to
new competition to move those barrels would the record high of 411,991 bpd reached in Feb-
be welcomed by the oil sands industry and could ruary 2020.™

P8 www. NEWSBASE .com Week 12 25•March•2021