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CN has obtained a long-term agreement from Southern Pacific Resource Corp. to transport bitumen to the U.S. Gulf Coast.

Southern Pacific plans to significantly increase its plant gate bitumen netback using rail to reduce diluent costs instead of selling its bitumen to a pipeline that offers access to West Texas Intermediate-based pricing. The agreement will enable the company to generate “attractive returns” from the first phase of its STP-McKay Thermal oil sands project that’s slated to start up this year near Fort McMurray, Alberta, Southern Pacific officials said in a prepared statement.

An overall rail marketing solution includes agreements with CN, Rick's Trucking, Altex Energy Ltd., Genesis Energy L.P., CIT Group Inc. and Tauber Co. Southern Pacific's bitumen will be trucked about 38 miles from the STP-McKay plant’s gate to CN’s terminal in Lynton, Alberta, then railed about 2,800 miles via CN and a short-line rail partner to a Natchez, Miss., terminal. The bitumen then will be transferred to barges, which will deliver the product as a feedstock to Gulf Coast refineries.

“This arrangement is significant to Southern Pacific because it demonstrates that alternatives to conventional pipelines are available to market bitumen from the Athabasca oil sands,” said Southern Pacific Chief Executive Officer Byron Lutes.

CN expects to begin moving the bitumen from Fort McMurray to Natchez beginning in the fourth quarter. Volumes will ramp up to more than 12,000 carloads per year as production increases, CN officials said.

The pact represents an important milestone in the Class I's growing business of shipping crude oil by rail, said James Cairns, CN’s vice president-petroleum and chemicals. The year, the railroad expects to move about 25,000 carloads of crude oil, up significantly from about 5,000 loads last year.

“CN offers producers of bitumen and heavy and light crude oil flexible, scalable and cost-efficient transportation options to help them enhance plant gate crude pricing netbacks, and significantly extend their market reach and access,” said Cairns.