Port of Churchill: Gateway to northern Europe for Alberta, Saskatchewan and North Dakota sweet crude oil?

OmniTRAX, Inc. of Denver eyes Rotterdam to discharge cargo

Darcy Brede is perhaps not what you might think of at first glance as the prototypal, if such exists, image of an American railroad head. For one thing, the head of Denver-based short line railroad OmniTRAX, Inc. is a Canadian from British Columbia. His American colleagues still tease him about his accent.

He also has a B.A. in history and literature from the University of British Columbia and an MBA from the University of Western Ontario. But his railway (Canada) or railroad (United States) background is solid and lengthy. While he's only been president of OmniTRAX, Inc. in Denver for six months, he served as the railroad's chief operating officer for four years previously from March 2009 to March 2013. Before that he has senior vice-president of operations and from January 2002 to May 2005, regional vice-president of operations and general manager of Hudson Bay Railway, with its railhead in The Pas. So when he's asked at public meetings, as he was in Thompson Aug. 15, if he's ever actually travelled through Northern Manitoba to Churchill by train, he can and does answer, "yes."

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Joining Brede in Thompson for the Aug. 15 community meeting and presentation was Mike Ogborn, of Ogborn Consulting Group, LLC in Denver, who retired as managing director and executive vice-president of OmniTRAX, Inc. in July 2012. He grew up in Sioux Falls, South Dakota and has lived in Denver since 1984.

An expert in public affairs and government relations, Ogborn was appointed by Manitoba Transportation and Infrastructure to serve on the Manitoba International Gateway Strategy Committee (MIGS). He has also worked with U.S. federal agencies such as the Surface Transportation Board (STB) and the Federal Railroad Administration (FRA).

Also on hand was Ken Rose, director of engineering and environmental services for OmniTRAX in Denver; J.R. Sampson, from southern Missouri, owner of Sampson Consulting Services, who recently retired as assistant vice-president of safety and rules for OmniTRAX, and from OmniTRAX Canada, Inc. Andrew Glastetter, Canadian division general manager for OmniTRAX in The Pas.

Jeff McEachern, Winnipeg-based executive director of Churchill Gateway Development Corporation, was also in Thompson for the Aug. 15 meeting and presentation.

McEachern has been executive director of the Churchill Gateway Development Corporation since 2011.

The corporation was established in June 2003 for the purpose of marketing the Port of Churchill through diversifying the traffic base and building two-way traffic. Churchill Gateway Development Corporation is a non-share, public-private partnership and includes representation from the federal government, through Western Economic Diversification Canada, the Province of Manitoba and OmniTRAX, Inc., the private owner and operator of the Port of Churchill and the railway that serves the port, the Hudson Bay Railway.

Before coming to OmniTRAX, Inc. and Hudson Bay Railway to work, Brede was director of network operations and manager of service design for BC Rail from January 1999 to January 2002.

OmniTRAX operates a network of 16 regional and short line railroads that cover 10 states in the United States and three provinces in Canada. The company's railroads interchange with BNSF Railway, Canadian National (CN), CSX Corporation, Norfolk Southern Railway and Union Pacific Railroad and transport commodities within the agricultural, aggregate and industrial mineral, energy, food, chemical, lumber, metal, petroleum and plastic industries. OmniTRAX, Inc is an affiliate of The Broe Group and was founded in 1986 and is privately owned by Pat Broe, who founded the company in Denver in 1972 as a real estate asset management firm.

OmniTRAX also operates and manages terminal and intermodal facilities where services such as railcar switching, container handling, ramp, de-ramp and carrier management are provided.

The Port of Churchill has the largest fuel terminal in the Arctic and is North America's only deep water Arctic seaport that offers a gateway between North America and Mexico, South America, Europe and the Middle East. OmniTRAX, Inc. bought the track from CN in 1997 for $11 million. It took over the related Port of Churchill, which opened in 1929, when it acquired it from Canada Ports Corporation, for a token $10 soon after buying the rail line. The deep-water port is looking to diversify its customer base following last year's dismantling of the Canadian Wheat Board, its preeminent customer for many years. Major customers have included the Canadian Wheat Board, Hudson Bay Mining and Smelting (Hudbay), Tolko Manitoba, Gardewine North, Manitoba Hydro and various grain merchandisers.

Now, if Brede has his way, OmniTRAX, Inc. will be competing for the business of delivering sweet crude oil to discharge at the Port of Rotterdam for northern European consumption, competing with the Saudi Arabian Ras Tanura complex, including Ras al-Ju'aymah, the largest global crude oil terminal for export in the world, and Nigeria's Bonny Terminal in the Rivers State of the lower Niger Delta basin.

Brede told the community meeting in Thompson he thinks OmniTRAX, Inc. can compete with Middle Eastern and African terminals for that northern European business by shortening the route from the Port of Churchill through Hudson Bay and the circumpolar Arctic and using smaller vessels, making sweet crude oil from Alberta and Saskatchewan cost-competitive for the first time.

"Light sweets actually have some good market reach," Brede said in Thompson Aug. 15. "The distance between Churchill and Europe is shorter than the distance from the Great Lakes over to Europe, so we have a competitive advantage, not just by distance of rail, but by distance of vessel as well because you go over and you circumnavigate over the top."

Brede said when it comes to the Port of Churchill and crude oil exports, "Having one market destination doesn't really make you viable. You have to have multiple market destinations to be viable."

If the plan is realized, it would also run counter to long-established Canadian crude oil flows, in which three refineries in Atlantic Canada - in Dartmouth, Saint John and Come By Chance in Placentia Bay on Newfoundland and Labrador's Avalon Peninsula - and two in Montreal now rely exclusively on expensive crude imported from the North Sea, Africa or the Middle East.

Brede said Churchill would be viable to both east coast refineries in Canada and American refineries in New York and down the eastern seaboard of the United States.

OmniTRAX, Inc. wants to ship 330,000 barrels of crude oil from the Port of Churchill in a test in October. Starting either next year or in 2015, OmniTRAX, Inc. plans to transport Bakken and Western Intermediate sweet crude oil on 80-tanker car Hudson Bay Railway trains from The Pas through Wabowden, Thompson Junction, Gillam and to Churchill to load for 10 Panamax-class tanker trips per shipping season out if Hudson Bay from July through late October or early November.

Brede told an earlier press conference in Winnipeg Aug. 12 negotiations are underway with about 25 Alberta oil companies that are interested in shipping oil through the port to refineries on either the east coast of Canada or in Europe.

But before prospective customers are willing to make long-term commitments, they want to conduct a trial run, Brede said. If all goes according to plan, a tanker carrying about 330,000 barrels of oil will leave the port on a test run in October.

Between now and then there are about $2 million in upgrades to the Port of Churchill's oil-handling system that need to be done, Brede said. The upgrades, which should be completed by the end of September, will boost the port's oil-pumping capacity to about 3,000 gallons per minute from the current 800 to 900 gallons per minute.

He said OmniTRAX officials hope to know in "a month or two" if they have a deal that would allow the test run to proceed.

Brede made the comments during the press news conference to announce the appointment of outgoing Conservative MP Merv Tweed as the new president of OmniTRAX's Winnipeg-based Canadian subsidiary - OmniTRAX Canada, Inc.. Tweed, the MP for Brandon-Souris, said he would resign his seat at the end of the month.

While the Port of Churchill wants to diversify into more outbound and inbound fertilizer and light sweet crude oil shipments, outbound grain shipments remains the bread-and-butter operation at the port, he said. Brede told reporters this is shaping up to be an above-average year for grain shipments through Churchill, with about 600,000 tonnes already committed. In an average year, the port handles about 500,000 tonnes during its shortened shipping season, which ends in late October or early November.

Brede said officials are also in negotiations with a Russian company about moving more farm fertilizer through Churchill into Western Canada. The fertilizer would arrive by ship in October, be stored over the winter at the port, and then shipped out by rail in the spring to Prairie customers.

Brede said Aug. 12 the port has handled some inbound fertilizer shipments in the past, but it would have to upgrade its handling and storage systems if it were to expand that business.

The Kapitan Sviridov, a Murmansk Shipping Company vessel, sailed into Manitoba's Arctic seaport at Churchill on Oct. 17, 2007, bringing the first-ever ocean shipment from Russia, OmniTRAX Canada and the Churchill Gateway Development Corporation noted at the time. The ship unloaded fertilizer imported by Farmers of North America, a farm membership-based organization. Upon discharge of the fertilizer, the Russian vessel was loaded with 20,000 tonnes of wheat destined for Italy - part of the Canadian Wheat Board's 600,000 tonnes to be loaded for export for the 2007 season, the largest wheat shipping program through the Hudson Bay town since 1977 when 816,000 tonnes were shipped.

Canada's oil producers are looking for a "Plan B" on Manitoba's coast as the proposed Northern Gateway and Keystone XL pipelines futures remain unclear. The Port of Churchill is among a growing number of potential options for diversifying oil exports as production climbs and major pipeline proposals face lengthy regulatory delays.

But getting the unrefined oil collected from oilfields across Western Canada to Churchill to reload onto Panamax-class tankers requires moving it through Northern Manitoba by rail, a prospect that faces increased scrutiny in the wake of Lac-Mégantic.

At Lac-Mégantic, Quebec, a runaway Montreal, Maine & Atlantic Railway (MMA) freight train carrying crude oil from the Bakken shale gas formation in North Dakota - in 72 CTC-111A tanker cars - derailed in downtown Lac-Mégantic in Quebec's Eastern Townships July 6. Forty-seven people are officially listed as dead as a result of the fiery explosion that followed the derailment.

The Canadian subsidiary of Montreal, Maine & Atlantic Railway filed for and was granted creditor protection in Quebec Superior Court after filing for bankruptcy protection Aug. 7. The same day the U.S. company sought similar bankruptcy creditor protection in United States federal district court in Maine.

Montreal, Maine & Atlantic Railway's parent company is the Rail World Group, with assets in the United States and throughout Eastern Europe, including Latvia, Estonia, Ukraine and Poland.

The number of rail cars used to transport oil in Canada has more than tripled over the last two years, rising from a low of 4,549 in June of 2011 to 14,217 this past April, according to a recent report by Poten & Partners, a global broker and commercial advisor for the energy and ocean transportation industries.

Under the plans by OmniTRAX, light-grade crude from Alberta and the Saskatchewan-North Dakota Bakken would be received by in The Pas at its interchange with CN Rail, Brede said, and shipped northeast to Churchill on its Hudson Bay Railway for 510 miles in three legs over 35 hours from The Pas to Wabowden, Wabowden to Gillam, and Gillam to Churchill.

"We think we can provide them with a competitive cost advantage to position [oil] to multiple destinations for a short period of time each year," McEachern, who made frequent trips to Calgary in 2012, reportedly told the National Post in an interview last October. "We are in pretty close proximity to where the oil is being produced to get it to tidal water. It's not a full solution, but it has an economic advantage to it and a producer is always looking for any economic advantage they can get."

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