Canadian Pacific expects to expand further into the crude business by railing more heavy grades from Western Canada as new loading terminals are put into service, the rail company's executive vice president said Wednesday.
"Over time we will see increasing volumes of heavy crude moving with different economics and drivers of demand than the lighter Bakken crude that we predominately move today," Jane O'Hagan said during the company's third-quarter earnings call.
The new terminals "rolling out" are focused on transporting heavy crude, she said.
These heavier crudes are not as susceptible to shipping margin impacts from narrowing key benchmark price spreads, O'Hagan said.
This year, some of those spreads tightened, cutting into profitability margins for railing Bakken Shale crude from North Dakota to coastal refining markets. But sources have said that rail shippers of Western Canadian Select have been somewhat protected from narrowing profit margins because of the relative price weakness for heavy crude grades.
During the third quarter, CP's crude volumes moderated while spreads narrowed, O'Hagan said. So far this year, CP has moved 65,000 carloads of crude, she said.
"In terms of our outlook, we are seeing orders pick up in October as spreads have widened recently," O'Hagan said. "Although we don't know how long this will persist. Our crude market will always be a combination of the consistent term volumes and the opportunistic volumes that respond to the movement of spreads."
The company expects to move 85,000 to 90,000 crude carloads this year, and is on track to achieve a longer-term estimate of 140,000 to 210,000 carloads. "We continue to work with customers on facility developments that have commitments to volume," she said.
The company is also making plans to move more frac sand -- sand used in hydraulic fracturing of unconventional wells, O'Hagan said.
During the third quarter, frac sand volumes saw double-digit volume growth, she said, without disclosing the exact volume amount.
"When I look at the frac sand market, and I think about where we need to be as a company, we have aligned ourselves with very strong players that sell a very high quality product," she said. "We expect these volumes will ramp up as they reach their production capabilities over the next year."
