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Market Chatter: CN Rail, CP Rail Surging With Crude Oil Moving by Trains

Posted
11/6/2012 12:09:00 PM
By: MT Newswires
Referenced Stocks:CP

Canadian National Railway Co. (CNR.TO) and Canadian Pacific Railway Ltd. (CP.TO), the country's No. 1 and 2 carriers, are rushing to build terminals to load oil beyond the reach of pipelines in some of North America's remotest regions, Bloomberg reported.

Canadian National is in talks to build more oil terminals after an agreement last month to construct a facility serving Manitoba and Saskatchewan, Chief Executive Officer Claude Mongeau said in an interview. "Rapid-deployment terminals" as little as a tenth of that size also are in the works, he said

Cargo from Alberta's oil sands is buoying Canadian National while Canadian Pacific ( CP ) benefits from tracks serving North Dakota’s Bakken Shale formation. Canadian Pacific opened a rail hub in the state this year and is investing $90 million to upgrade a Saskatchewan-to-Minnesota line.

"Crude by rail is becoming a reality," said Walter Spracklin, a transportation analyst at RBC Capital Markets in Toronto. "Before, it was a theory."

Rail transport of crude in North America has jumped by about 360,000 barrels a day in the past year -- the equivalent of adding a "major" pipeline, according to Steven Paget, an analyst at FirstEnergy Capital Corp. in Calgary. Those shipments have soared as community protests slow new pipelines and oil finds occur outside the current pipe network.

As recently as two years ago, Canadian National didn't haul any crude. Now it projects moving about 30,000 oil carloads in 2012. Petroleum and chemicals produced 16% of the Montreal-based railroad's $7.4 billion in revenue in 2012's first nine months.

Canadian Pacific predicts reaching an annual rate of 70,000 oil-tank cars by early 2013, after running only about 500 such loads in North Dakota in 2009. Through three quarters this year, the Calgary-based carrier got 22% of its $4.2 billion in sales from the industrial and consumer products category, which includes oil and gas.