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Crude-by-rail business gaining speed

Keywords: Tags  crude oil, shipments, railroads, pipelines, terminals, Canadian National Railway, Jean-Jacques Ruest, Claude Mongeau Canadian Pacific Railway

CHICAGO — As the volume of crude oil shipments by rail continues to accelerate, more Class I railroads are teaming up with producers, refineries, pipeline and terminal operators, and others to move the product to consumption points.

Montreal-based Canadian National Railway Co. (CN) said that its crude-by-rail revenue jumped 300 percent in the first quarter of 2013.

"We expect a new crude loading terminal to open on our line in the coming months," chief marketing officer Jean-Jacques Ruest said during a recent earnings call, adding that CN and pipeline companies "cooperate where it makes sense."

"Refiners today (see) that getting product by rail allows them to get a price they can’t get from a pipe," he said. "(As) refiners invest in (tank car) fleets, pipeline companies are getting interested in doing multimodal with the railroad and investing in terminals."

More energy market participants are looking at receiving facilities and unit trains, Ruest said. "This is just picking up momentum from one quarter to another. The capital investment by all these different players is very encouraging."

Rail isn’t a stand-alone solution, said CN president and chief executive officer Claude Mongeau, who added that the railroad is talking with refineries and producers about "rail and barges to get to a destination refinery and using the ship’s unloading capacity. Or it’s pipeline, then rail. We are seeing a range of new avenues being created, which all clearly show that rail and pipeline are complementary."

Canadian Pacific Railway Ltd. (CP Railway) saw a 36-percent jump in revenue for crude oil shipments in the first quarter, the company said during its recent earnings call.

"This growth momentum continues as loading network expands, our destination network diversifies and shippers commit to the crude-by-rail model," said chief marketing officer and executive vice president Jane A. O’Hagan. "We have clear line of sight to two to three times our current 70,000-carload run rate, and we believe that a two-times target run rate can likely be reached 12 months earlier than our original 2016 prediction."

Calgary, Alberta-based CP Railway is investing $50 million in infrastructure to support that line of business, chief executive officer E. Hunter Harrison said.

The majority of Canadian crude goes to Gulf Coast refiners, "but other (regional) markets are developing pretty quickly" so CP Railway has entered into talks with producers and transloaders as well as marketers "to make those markets" as demand from refineries builds up, O’Hagan said.

The company also sees its relationship with pipelines as symbiotic, with plans to work to move crude from pipelines.

Kansas City Southern is negotiating with a potential partner to develop a unit train unloading and storage terminal on property it owns in Port Arthur, Texas, according to Patrick J. Ottensmeyer, the Kansas City, Mo.-based company’s executive vice president of sales and marketing. Port Arthur refineries import about 1.7 million barrels of crude oil each day, he said. "Even if or when (TransCanada Corp.’s) Keystone (XL) pipeline is completed, we believe it will be able to handle only about half of this demand. We hope to announce the transaction very soon."

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