Canadian crude taking rail through northern Minnesota

Just as more of North Dakota's oil bounty travels along Minnesota railroads from the west, Canada is sending more of its crude south on tracks through the northern part of the state.

Canadian National Railway, the largest railroad in Canada, reported an 82 percent increase in crude oil shipments in three months ending in June. Many of the oil tank cars are traveling on rails that pass through Warroad and Baudette and cross the Rainy River near Voyageurs National Park on their way to Superior, Wis.

The northern crude-by-rail traffic isn't as visible or plentiful as in the Twin Cities. Canadian oil shipments are mixed with other freight, and information about routes hasn't been publicly released. Yet some officials in northern communities are concerned about the growing traffic.

"This is just as big a problem as the North Dakota oil coming across Minnesota," said Daniel L'Allier, fire chief in Virginia, Minn.

L'Allier said he has seen Canadian National's nonpublic annual report on hazardous rail traffic through his community. "It was amazing how much was there," he said of the crude oil numbers.

Overall, Canada's exports of crude oil by rail have grown tenfold in just more than two years, according to that country's National Energy Board. The rail total — 160,000 barrels per day — is equivalent to a modest-sized pipeline into the United States.

About 50 oil trains per week haul Bakken crude oil across Minnesota. U.S. regulators recently began requiring railroads to report the routes to state officials, and most states in the Midwest, including Minnesota, have released the information to the public.

But shipments of non-Bakken Canadian oil through northern Minnesota aren't included in those reports. Executives at both of Canada's major railroads, however, have told investment analysts that crude-by-rail traffic from that country is growing. On Canadian National, 60 percent of second-quarter shipments were heavy crude.

Unlike the long trains of strictly tank cars passing through the Twin Cities, the Canadian National trains crossing the border bridge over the Rainy River at Rainer, Minn., are collections of tank cars and other freight cars.

"It is very concerning to people around here," said Koochiching County Sheriff Brian Jespersen, who wants to host a meeting with regional officials this fall to discuss the issue. "Our biggest fear is if a train derails on the bridge and contaminates the water."

In an interview, Canadian National spokesman Patrick Waldron said the railroad has taken steps to reduce accident risks and has emergency plans and resources to respond to accidents. The railroad has a "denser network of wayside detection technology than any other railway in North America," including systems to spot hot bearings and wheels, dragging equipment and other unsafe conditions, Waldron added in an e-mail.

Like North Dakota, Canada is having an oil boom, and the United States is a key market.

Canadian crude oil exports to U.S. refiners are expected to rise dramatically as Canada's oil production rises from about 3.6 million barrels per day today to a projected 5 million barrels per day by 2020, according to RBN Energy, a Houston-based energy consultant.

Canadian Pacific, a hauler of North Dakota oil across Minnesota, also is shipping more Canadian crude oil by rail. In July, company executives told analysts that crude oil shipments are expected to increase to 140,000 cars this year — with Canadian oil representing more than half of the traffic in 2015. Like its rival, Canadian Pacific doesn't publicly disclose routes or destinations.

Executives from both Canadian railroads have told analysts that they'll consider sending crude-only unit trains — typically with 100 cars or more — to a proposed unloading facility at Port Arthur, Texas. The project, proposed last month by Waltham, Mass.-based Global Partners and Kansas City Southern, is designed to unload two oil trains per day of heavy crude from the Alberta oil sands by 2016 or 2017.

Canada's heavy crude extracted from northern Alberta's oil sands is so thick that it must be diluted with lighter hydrocarbons to transport in pipelines. It is known in the industry as "bitumen."

It has a higher flash point and less volatility than the light Bakken oil that has erupted in explosive fires in rail accidents, including the July 2013 oil train disaster that killed 47 people in Lac-Mégantic, Quebec.

"It is more like shipping asphalt around the country," said Dave Christianson, who oversees freight rail planning for the Minnesota Transportation Department. "You would be hard pressed to start a fire with it, but the downside is that if you spill it into a waterway, it is going to the bottom."

That can carry a price. A 2010 pipeline rupture that leaked Canadian crude oil into Michigan's Kalamazoo River has cost another Canadian company, Enbridge Energy, more than $1 billion to clean up.

Canadian National CEO Claude Mongeau told analysts in January that the railroad relies on a lot of newer, sturdier tank cars, including some with heating coils and insulation to keep the thick oil flowing. "So we are dealing with safer cars," he said.

Many Gulf Coast refiners have the capability to process heavy grades of crude oil. Canadian producers have been counting on TransCanada's proposed 830,000-barrel-per-day Keystone XL pipeline to increase oil sands shipments to the Gulf. That project, which requires President Obama's approval, is stalled because of opposition from climate activists.

"Absent available pipeline capacity, the only feasible alternative for oil sands producers to get their product to market is via rail," RBN analyst Sandy Fielden said in a June research report on the growing Canadian crude-by-rail traffic.

A U.S. State Department study said it would take 14 daily unit trains of 100 tank cars each to match Keystone XL's capacity. The study identified two "representative" routes passing through Minnesota, including Canadian National's northern-border rail line.

People in Warroad and Baudette, two Minnesota cities along the border, see many Canadian National freight trains carrying crude oil and other commodities. The railroad's east-west tracks dip into the United States between Warroad and Baudette for 60 miles to skirt Lake of the Woods, then run back into Canada.

"We have noticed the trains have gotten longer," said Warroad Police Chief Wade Steinbring, who also has spotted the diamond-shaped, numbered placards on tank cars that indicate crude oil or other hazardous liquids. "Usually they are big, black tank cars. There is definitely plenty of them."

David Shaffer • 612-673-7090 • @ShafferStrib