Oil’s new Arctic passage to Europe
Calgary — The Globe and Mail
Aug. 15 2013
As some of the biggest players in Canada’s oil industry fight for proposals to move the product west, south and east, a new plan is emerging to move crude north.
Omnitrax Inc., a private U.S. company that owns Churchill, Man.’s port, may provide a new channel for moving crude to markets on both sides of the Atlantic Ocean.
The Denver-based company, which also owns Manitoba’s northern railway, is nearing a test run to ship oil through its system as part of an ambitious plan that could see Western Canadian crude moving for the first time to Europe’s largest port via tanker across Hudson Bay.
If the plan is realized, it would run counter to long-established crude oil flows, in which east coast Canadian refineries have imported their feedstock from North Sea and Middle East suppliers.
It is also among a growing number of potential options for diversifying oil exports as production climbs and major pipeline proposals face lengthy regulatory delays.
Under the plans by Omnitrax, light-grade crude from Alberta and the Saskatchewan-North Dakota Bakken region, shipped to Churchill on its Hudson Bay Railway, could also feed refineries on the East Coast of North America.
Omnitrax made headlines early this week when Manitoba Conservative MP Merv Tweed resigned from the government to become president of the company.
“Western Canadian crude has never moved to Rotterdam, and we think that competitively – and we’re talking about much smaller vessels than you would get out of Saudi Arabia, for example – we could serve that market,” said Mike Ogborn, an adviser to the board of Omnitrax.
The company plans to spend $2-million on a trial run as early as October so it can make adjustments to the port facilities. If approved by Transport Canada, the commercial phase – the loading of 10 tankers per season – would cost a “multiple of millions of dollars” to beef up the pipeline needed to transfer oil to ships, add pumps and install a new storage tank, he said. Omnitrax aims to start shipments next year or in 2015.
Omnitrax is proposing the plan as Canadian oil producers seek to move crude by train to overcome delays in pipeline projects. Those delays have constrained shipments and have consequently helped to lower prices for Western Canadian crude relative to U.S. and international oil prices.
Omnitrax has been in contact with about 25 oil producers as it seeks to attract volumes to Churchill, the northern harbor that is ice-free from July to October, Mr. Ogborn said. He did not name the companies courted as potential shippers. Omnitrax is seeking to bolster the types of cargo it handles at the port, which is a northern supply centre but also a facility that had long been dependent on grain exports by the Canadian Wheat Board, which lost its monopoly on such business last year.
The energy industry sees some merit in the plan alongside others being proposed to smooth out transport problems, but companies are still waiting for a firm proposal from Omnitrax, said Greg Stringham, vice-president of the Canadian Association of Petroleum Producers.
Mr. Ogborn spoke to The Globe and Mail from The Pas, Man., a stop in a series of information sessions the company is hosting in northern communities this week. The public relations effort has been complicated by the devastating July 6 derailment and explosion of a freight train carrying oil through Lac-Mégantic, Que. That mishap killed 47 people and destroyed a large part of the town, and Mr. Ogborn said discussions about the safety of shipping crude by train account for a large part of the information sessions.
“We bring it up because we knew that it was on the forefront of many peoples’ minds,” he said. Officials’ main message is that the railway had already adopted many of the strengthened safety regulations that Transport Canada put in place in the aftermath of the disaster in Quebec.
The Manitoba government, which has helped fund track upgrades in recent years, supports diversifying the products moving on the Hudson Bay rails and through the port, but it is not ready support the project until it is satisfied that Omnitrax’s rail system can safely handle the volume of oil the company proposes, Infrastructure and Transportation Minister Steve Ashton said.
“Our concern is any kind of transport, particularly of any kind of commodity that can have impacts in terms of the environment, or other hazards, has to meet the highest environmental and safety standards,” Mr. Ashton said in an interview. “I want to stress that despite some of the progress in upgrading the track, we do have some concerns about the degree to which the current proposal meets our expectations.”
If Mr. Ogborn assuages these concerns, Omnitrax may find itself competing with TransCanada Corp.’s $12-billion Energy East pipeline plan to carry crude from western Canada to the East Coast and to export markets abroad including India.
TransCanada’s project, which still must clear regulatory reviews, would deliver up to 1.1-million barrels per day from Western Canada to Quebec in late 2017. A 1,400-kilometre extension would be built to ship oil to Saint John a year later.