June 9, 2012:

SAINT JOHN, N.B. _ Cheap western crude prices are driving the North American oil industry to find creative ways to ship oil east where refineries are struggling to remain competitive.  In recent weeks, the first rail shipment of Bakken crude oil from North Dakota arrived in Saint John amid word Irving Oil Ltd. is close to reaching a deal with an American fuel broker that would involve regular shipments of oil arriving by rail.  The net savings for shipping the crude oil, after accounting for the cost of transportation, are estimated to be about $7 to $10 per barrel, according to Pavel Molchanov, an energy analyst with Raymond James and Associates Inc., in Houston. ``It`s obviously not very cheap to ship crude from the mid-section of North America to the far reaches of Atlantic Canada, but it is cheaper than buying imported crude,'' he said.  The discount between Bakken oil and Brent crude, the European benchmark that East Coast refineries rely on for a majority of their stock, has averaged $27.75 a barrel this year, according to data compiled by Bloomberg.  Crude oil from the Bakken oilfields is cheaper than its counterparts because it is easier to extract and to refine into lighter products such as gasoline, diesel and jet fuel.

Marathon Petroleum Corp. (MPC), an independent American refiner with a network of pipelines, barges and rail operations, estimated in November that the cost of moving Bakken crude to the U.S. East Coast would be about $18 a barrel. The savings bode well for both railway companies as well as East Coast refineries. Last month, Imperial oil announced its Dartmouth refinery, after years of losing money, would be put on the market. ``Many refineries in Eastern Canada currently import oil from offshore and the opportunity to be able to connect the growing supply of western Canadian oil with refineries and the demand in Eastern Canada is a primary objective of what the industry is trying to do,'' said Greg Stringham, vice-president of the Canadian Association of Petroleum Producers.  ``We would like to replace the foreign crude imports that are coming into that market now and they are being looked at through rail proposals as well as pipeline proposals that have been brought to the fore,'' he said.

According to a report published this week by CAPP, the industry will continue to rely on pipelines as the dominant mode of transportation for crude oil, but in the short-term, crude oil transported by rail will increase sharply due to the ability to use rail capacity relatively quickly and in small increments as needed. In the span of just one year, rail exports from North Dakota have risen to about 225,000 barrels per day in March from 50,000 barrels per day a year earlier, according to estimates by the North Dakota Pipeline Authority. According to Statistics Canada, about 8,823 rail cars were loaded with oil and other petroleum products in March 2011, compared with 5,602 rail cars a year earlier. In addition, TransCanada Corp. recently introduced the concept of a new pipeline system to transport about 625,000 barrels per day of western Canadian crude oil across the country to Montreal and potentially further east to Saint John.

``It would be a substantial benefit to have this infrastructure program because, should it be built, it will create lasting jobs, not only in the manufacturing industry but in the oil-refining business in Saint John,'' said John Williamson, MP for New Brunswick Southwest. He added that it would also be a benefit for the entire country because it would allow Canadian oil producers in the west to receive top dollars for their product while helping refineries on the East Cost become more competitive.

By Canada.com