Enbridge Inc. is seeing large volumes of light crude oil coming back to its Bakken and Enbridge Saskatchewan systems from rail, and the company is optimistic that its pipeline investments for transport of Western Canadian crude will pay off, Guy Jarvis, Enbridge Inc.’s president, liquids pipelines, told analysts during the company’s Aug. 1 conference call.

According to John Whelen, senior vice president, finance, volume growth of crude, “from Western Canadian producers, stronger demand from downstream refiners and system optimization efforts” contributed to Enbridge moving a record volume of nearly 2.1 million barrels per day (bbl/d) of crude in June. The greater supply and demand led the company to undertake several projects to increase throughput capacity.

“As line 9B [from North Westover, Ontario, to Montreal] comes on and then further down the road Sandpiper, and we start bringing those higher-priced light markets—or access to those higher-priced light markets to our system, that we are going to continue to shore up our defense against rail,” Jarvis said. “There is going to be some markets served by rail, like the West Coast … that are probably going to continue to be served by rail. But for those markets that we have access to, we’re becoming more and more confident in our competitiveness.”

As for the heavy side of things, pipeline capacity isn’t measuring up to what’s being produced. “On the heavy side of the equation, for us, we are full, and we expect to be full. So from a rail point of view, it is truly dealing with the excess volumes that are available in Western Canada that ourselves and others can’t move,” Jarvis said.

In other words, where pipeline capacity can’t meet growing production of heavy crude, there is an ongoing need for rail transport. Producers are aware of this need and already provide for crude-by-rail transport from production areas, according to Enbridge CEO and President Al Monaco.

“On the heavy side, there is not much doubt that … we are full now. But if volumes come on as we expect them to in the supply side, you know there is still going to be a continuing role for rail,” said Monaco. “And, of course, many of the producers are quite developed in terms of rail loading facilities in Western Canada. So it is still going to be there, a big chunk probably on heavy, until we get the rest of the pipe capacity sorted out and online.”

Still, while loading facilities in Alberta may be developed, “rail outlets for Western Canadian heavies are still needed,” Jarvis said. He said that Enbridge is planning to build a rail unloading facility adjacent to the receipt point of its Flanagan South Pipeline. The pipeline is currently under construction and the company expects it to be mechanically complete in early October, Monaco said. The unloading facility would allow for transport by rail of heavy crude oil from Alberta to Flanagan, Ill., where crude could be transferred to the Flanagan South and Seaway Twin pipelines and transferred to the Gulf Coast.

The facility’s planned unloading capacity is up to 140,000 bbl/d, and two unit trains per day, Jarvis confirmed. The project’s estimated capex is CA$150 million (US$137 million), with a targeted in-service date in early 2016.

When asked whether the rail terminal’s construction was dependent on the company’s receiving an amendment to the presidential permit for its Alberta Clipper Line 67 capacity increase at the border between Canada and the U.S., Jarvis said Enbridge would most likely proceed with the unloading terminal regardless of the pipeline approval. “We are working on optimizing our system to deliver the expected capacity we would otherwise get from Alberta Clipper,” he said. “And we believe that the basin continues to need more outlets for that crude for the foreseeable four or five years.”

The company expects its current pipeline demand to remain strong for the rest of the year, Whelen told analysts. With pipelines—especially for heavy crude—operating near capacity, Enbridge expects crude-by-rail transport to remain an attractive option for those operating in both the upstream and downstream sectors.

“I think the environment we are in, producers and refiners are looking for optionality,” Monaco said. “And that is where the rail part of this comes in for us. And to the extent we can provide that optionality to our customers at a reasonable cost, and they are willing to commit to use the facility, then it makes a lot of sense. Because obviously the costs are minimal, relative to the value that can be created by opening up these markets.”