A Canadian railroad venture has sparked a significant increase in the number of oil trains that pass through Minnesota every month.
Canadian Pacific Railway's new, specialized Canadian crude cargoes are run on its main line that runs through the Twin Cities. Shippers will be more interested in the new oil service, given that Canadian Rail giant has recently purchased a major U.S. railroad.
Safety concerns have been raised in Minnesota and elsewhere about oil-by-rail since 2013, when an oil train from Quebec caught fire, killing 47 people.
Canadian Pacific refused to disclose the number of new oil trains it is currently operating. In July, the chief marketing officer of Canadian Pacific Railroad stated that he expected "business to ramp-up to 15 to 20 trains each month during the third quarter." This conference call was held with analysts. It ended September 30. Their destination was Port Arthur, Texas.
Canadian Pacific and USD Partners, the company behind the new Alberta Canada rail venture, claim they are using a new technology to make shipping oil safer than it needs to be classified as a hazardous or flammable cargo.
Canadian Pacific CEO Keith Creel stated that the project is "a game changer" from a safety, innovation, and sustainability perspective in 2019, when the announcement was made.
USD Partners claims that its oil blend has been tested and found that it can float in water if it is spilled during a train accident. Heavy Canadian crude oil can sink and diffuse unlike lighter oil, making cleanup more difficult.
However, there are some skepticals about the claims of USD and the venture.
Frank Hornstein, a Minneapolis DFLer and head of the Minnesota House's Transportation Finance and Policy Committee, stated that "there are many problems with this proposal and there is complete lack of transparency around them."
He said, "We don’t know the characteristics this material is being transported." "We can only rely on the company to make a profit from it to ensure its safety."
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Hornstein also stated that it is imprudent to start new fossil fuel projects at a time when the climate emergency is growing day by day.
The majority of Canadian crude oil heading for the United States travels via pipelines, especially Enbridge's six-line corridor through Minnesota. Enbridge has just completed Line 3, a new $3 billion pipeline that will replace Line 3. Line 3 was severely corroded and could only operate at half its capacity.
Enbridge argued that the pipeline would increase the number of oil trains through Minnesota without it. Laura Triplett, a professor of geology at Gustavus Adolphus College, stated that this was one of the arguments Enbridge used to support the controversial project.
She said, "Now we're getting more trains anyway."
The route of the Canadian Pacific runs through Minnesota and the Mississippi River in the east. According to Department of Public Safety records, CP has been the largest oil rail shipper in the state for 21 months.
Volume varies considerably. CP had five to six dangerous trains that ran through the most trafficked areas for these types of loads during the week ended Oct. 3. The number of hazardous trains running through the most heavily trafficked counties for those types of loads was 16 to 19 for the week ending Sept. 5. The bulk of hazardous rail cargoes are made up of crude oil and ethanol.
These state counts won't include the new oil trains that run from USD's terminal. USD stated that the oil isn't considered hazardous cargo under U.S. or Canadian transportation regulations.
Bitumen, a heavy Canadian crude oil, is much less volatile and more combustible that lighter oil from North Dakota. This was the reason for the huge accident in Quebec eighteen years ago. Canadian crude oil can still catch fire.
In February 2020, a Canadian Pacific train was derailed in rural Saskatchewan. It exploded, releasing around 400,000 gallons oil. Two months prior, in Saskatchewan, a similar-sized CP train derailment and oil leakage had also occurred.
USD claims that oil produced using its new technology is safe and non-flammable. The key to this claim is something called diluent.
Canada's oil sands bitumen is thick enough to be extracted from large open-pit mines. This is a carbon-intensive process. Oil shippers use a diluent that is lighter and more flammable to make the stuff flowable enough for transport.
About 30% of oil transported through pipelines is typically made up by diluent. Oil will sometimes be transported directly from pipelines to railcars, where it is maintained at 30% diluent. Sometimes, trains transport heavy crude oil with 15% diluent.
USD Partners stated that the "DRUbit" process reduces the oil dilution level to 5%, and that the remaining diluent has less light hydrocarbons.
DRUbit reduces the diluent by design to permit the product not to meet the flammable and dangerous classifications of the U.S. Department of Transportation and Canada’s Transport of Dangerous Goods Regulations," USD stated in a statement to Star Tribune.
Canadian Pacific also stated in a statement that DRUbit was specifically designed to ensure rail safety.
U.S. and Canadian transportation regulators state that it is the responsibility of the shipper to determine whether oil or other cargoes are dangerous.
Companies in Canada's oil region have worked for years to eliminate diluents from railway cars. This is not only for safety reasons, but also because it has been a matter of life and death. Economics plays a key role.
Kevin Birn, an analyst in the Calgary oil industry for IHS Markit, stated that Diluent is a low value product that increases shipping costs. It basically takes up space."
The terminal at USD in Hardisty, Alberta is a joint venture between Gibson Energy and the Canadian firm Gibson Energy. It receives crude oil from pipelines with 30% of diluent. It recycles a lot of the diluent, and then ships it back to Alberta oil producers for reuse. This is a cost-efficient measure.
USD Partners, a publicly traded company, has an agreement with ConocoPhillips for the shipping of crude oil from Alberta. It is also looking for other customers.
Pipelines are generally much cheaper than rail to transport oil. However, USD Partners claims its technology is more cost-competitive than pipelines. Analysts agree.
If CP's purchase of Kansas City Southern for $27 billion is approved, the economics for USD Partners as well as the Canadian Pacific will be even more favorable.
The Canadian Pacific's system runs south from Kansas City. The KCS is connected to the Gulf Coast, which is the largest U.S. oil refining center, including Port Arthur, Texas. ConocoPhillips also has a refinery in the vicinity.
USD Partners built a new terminal in Port Arthur. It was also completed last summer. KCS, like CP has played a key role in the development of the DRUbit rail service from Port Arthur.
CP will now be able offer single-line service all along the route to the Gulf Coast. This should lower costs for all traffic using the combined railway.
According to Pat Ottensmeyer, Kansas City Southern CEO, "That single-line service," he told stock analysts in September. It avoids interchanges and avoids situations that add cost and time.