Converting more pipeline in TransCanada Corp.’s troubled mainline to oil service would avert potential railway congestion as well as reduce the old natural gas system’s chronic excess capacity, say federal officials in Ottawa.

A reality check on proposals to duck popular resistance against new pipelines by switching oilsands traffic onto trains has been presented to safety hearings held by the Canadian Senate’s energy and environment committee.

“If you take a pipeline that moves 500,000 b/d, to give you a picture of this, you would need a train of 100 cars going by about every two hours,” testified Mark Corey, the assistant deputy minister in charge of Natural Resources Canada’s energy sector. “You would need 10 of those trains, so 1,000 cars, every day. Picture standing by a rail line watching a train of 100 cars go by every two or three hours; 10 of those a day. Pipelines still, in the longer term, are probably the most efficient way to move crude.”

TransCanada executives told the company’s shareholders last month that work is going ahead on a plan to convert a second of the six pipes in its Mainline right-of-way to oil service (see NGI, Feb. 18). The tentative schedule calls for an open season auction of conversion capacity later this year.

The Canadian leg in TransCanada’s Keystone oilsands conduit is a conversion that revived a dormant natural gas pipeline in the western half of its Mainline. The imminent proposal is on the larger scale of the main Keystone XL project, which has run into environmental resistance and White House indecision in the United States.

The new Mainline conversion scheme would take 500,000 to one million b/d to Ontario and possibly as far as Montreal, supplying central Canadian refineries while also making production available for export via border crossings into the United States along the route.

A Montreal destination also raises possibilities of eastbound tanker exports to international destinations, via either the St. Lawrence Seaway or a long-standing oil link between the French Canadian city and a Maine tanker terminal at Portland. Both of the country’s major railways, Canadian National (CN) and Canadian Pacific (CP), are advancing proposals to replace hotly-contested pipeline projects with high-frequency “unit” or single-cargo trains.

Rapid increases in light oil output from formations such as the Bakken in the western United States and Saskatchewan have stimulated a revival of railway tank car traffic, at least until pipeline construction catches up. The CN and CP long-range plans are for permanent additions of oil service.

CN and CP both operate networks that span the United States as well as Canada. CN especially has been working with the Alberta oil industry for about four years on a scheme called Pipeline on Rails. CN tracks include a spur line to the northern oilsands capital of Fort McMurray, and about C$40 million has been spent on strengthening it for anticipated increases in heavy traffic. The scheme also includes a new generation of standardized tank cars, plus matching loading and unloading facilities.

U.S. links in the CN network reach all the way to Louisiana. The railway boasts that even big freight trains travel much faster than oil flows in pipelines, which move their cargo at the speed of walking briskly at four or five miles per hour. The railways acknowledge their freight rates are higher than pipeline tolls, but point out that they offset at least part of the extra expense because tank cars can carry undiluted bitumen.

Pipeline shipments of the molasses-like Alberta product require extensive use of costly thinners such as condensate or natural gasoline and synthetic crude, made by oilsands upgraders, which fetches a premium over prices for benchmark West Texas Intermediate. Federal officials estimate railway oil shipping costs $8-13/bbl, while pipelines charge $3-8/bbl. But the higher rates for rail deliveries are also offset by the ability they create to shop around for markets where prices are stronger than in saturated destinations for pipeline shipments of Canadian oil, especially in the U.S. Midwest.

Canadian industry and government forecasts predict oilsands production will triple to 5.1 million b/d by 2035. Counting new light crude production with the shale technology of horizontal drilling and hydraulic fracturing, total Canadian output of all oil varieties is projected to reach 4.5 million b/d in 2020 and six million in 2025.

At the same time, there is no sign that all the pipelines in TransCanada’s Mainline system will refill with gas any time soon. Since 2007, firm service traffic has fallen by about half from the right-of-way’s full capacity for 7 Bcf/d, increasing tolls by spreading costs thicker over reduced shipping volumes. A decision is awaited from the National Energy Board after a year of hearings on a TransCanada proposal to restructure Mainline finances and services.

U.S. shale development has turned the tables on Canadian gas producers, who built their industry on exports to the United States, the Senate committee was told by Jeff Labonte, director-general of Natural Resources Canada’s petroleum resources branch. Shale development in the northeastern United States and Louisiana especially has changed the cross-border gas market by making U.S. production available much closer to central Canada than Alberta supplies, Labonte said.

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