CP Rail/KCS rail merger to unite loading and unloading links for bitumen transport

Photo: The Canadian Press

An oilsands facility seen from a helicopter near Fort McMurray, Alta., on July 10, 2012. Partners building Western Canada's first diluent recovery unit project to allow more oilsands shipping by rail from Alberta say the merger of Canadian Pacific Railway Ltd. and U.S. rival Kansas City Southern gives their project a shot in the arm. THE CANADIAN PRESS/Jeff McIntosh

A partner in a project designed to allow more oilsands bitumen to be shipped by rail from Canada to the U.S. says the US$25-billion merger of Canadian Pacific Railway Ltd. and U.S. rival Kansas City Southern promises to provide additional benefits.

Jim Albertson, senior vice-president of the Canadian business unit for Houston-based USD Group, says CP Rail and KCS have been "instrumental" in moving forward Western Canada's first diluent recovery unit (DRU) now under construction at Hardisty in east central Alberta.

Although most of Western Canada's crude-by-rail is shipped by Canadian National Railway Co. because its east-west main line runs through Edmonton and is closer to the oilsands of northern Alberta, CP Rail connects with an oil-loading terminal operated by USD Group and its DRU partner, Calgary-based Gibson Energy Inc., at Hardisty.

In conjunction with the DRU project, USD Group is building a new oil unloading terminal at Port Arthur, Texas, to receive and distribute the Canadian oil or "DRUbit" — with the terminal served by a KCS rail line.

Diluent is light oil which is mixed with sticky, heavy bitumen from the oilsands to allow it to flow in a pipeline. It makes up as much as a third of the volume of blended bitumen so reducing diluent increases bitumen export capacity.

The Gibson-USD Group project is designed to remove most of the diluent from oil transported by pipeline to Hardisty, allowing transfer of the concentrated heavy crude to railcars for shipping south, while the diluent can be recycled back to Alberta oilsands producers.

The initial 50,000-barrel-per-day phase of the DRU and the Texas terminal are expected to be in service later this year, while the rail merger is expected to close, if it gets shareholder and regulatory approvals, in mid-2022.

“Both Canadian Pacific and Kansas City Southern were instrumental in making the diluent recovery unit and DRUbit-by-rail (DBR) a reality,” said Albertson in an email.

“We fully expect that the combination of the two railroads will only strengthen their support for this new source of bitumen, which offers operational, safety and environmental benefits when compared with available alternatives.

"A unified network with a single DBR carrier should result in additional benefits to all parties, both now and in the future.”