Is Canadian National Railway (TSX:CNR) About to Revolutionize Oil Transport?

Canadian National Railway (TSX:CNR)(NYSE:CNI) is working on technology that could turn the crude-by-rail business completely upside down.

| More on:

Image source: Getty Images

Canada’s top energy producers have been plagued with pipeline shortages, often turning to rail cars to get their product to market.

This has been great news for Canadian National Railway (TSX:CNR)(NYSE:CNI). Approximately 20% of the company’s traffic is either in petroleum or chemicals. CN’s network — which covers all of Canada and portions of the United States — is well positioned to take Alberta crude to American refineries. CN’s network even stretches down far enough it can take crude to ports on the Gulf of Mexico for export.

CN is also benefiting from the energy production in a different way. Fracking requires a great deal of sand, which is used to prop open the cracks formed by the process. CN shipped 131,000 carloads of sand in 2017 and is on pace to do similar volumes in 2018.

One disadvantage to shipping oil by rail is the risk of a catastrophic spill: just one derailment could dump massive amounts of oil onto fragile ecosystems. Of course, the last thing a rail operator wants is to have a spill. It’s not just for environmental reasons, either. Train accidents are also expensive.

Canadian National wants to change the way oil is shipped by rail. The company is working on a revolutionary new solution, a process that would allow it to ship oil as a dry product. This would open up all sorts of interesting opportunities for both CN and Canada’s top energy producers.

Enter Canapux

The technology — which has been dubbed Canapux because the end product resembles a hockey puck — seems pretty simple on the surface.

The process takes bitumen, runs it through a processing process, and spits out a product about the size of a bar of soap emerges. The puck is then coated with a polymer finish that protects it from both leaking and outside forces. The pucks are flammable, but only if temperatures exceed 145 degrees Celsius.

The end product is fully sealed and can be shipped just like any other dry product. If there’s ever a spill the product is simply picked up with no long-term impact to the environment. Obviously, this makes the shipping process much easier.

When the pucks are delivered to their final destination, the polymer is then separated from the bitumen, leaving the latter ready to be refined. The polymer can then be sold on the open market or shipped back to the original processing center for the next batch of bitumen.

CN has many ways to win if this process catches on. It could build processing centers near large oil sands projects. Depending on cost, some producers who currently use pipelines to get their product to market may switch. And perhaps most important, it could open up huge export potential.

As we’ve seen with recent pipeline expansion efforts, many people don’t want a pipeline in their own backyard, which has hampered efforts to market Canadian crude worldwide. But if oil is shipped in a safe pellet form, it can be loaded and unloaded just like any other dry good, which makes oil far easier to ship.

The bottom line

Unfortunately for CN investors, this process is likely years away from the spotlight, as it’s only at the pilot project stage today. Even if the technology works, it’s still going to take a while to build processing plants and convince oil producers to go along.

Still, investors should be looking at this today before it becomes built into CN’s stock price. By the time this becomes a sure thing, it’ll be far too late.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Nelson Smith has no position in any stocks mentioned. David Gardner owns shares of Canadian National Railway. The Motley Fool owns shares of Canadian National Railway. CN is a recommendation of Stock Advisor Canada.

More on Dividend Stocks

edit Person using calculator next to charts and graphs
Dividend Stocks

Better Buy: Fortis Stock vs Enbridge

Fortis stock and Enbridge are top dividend stocks on the TSX today. Which stock is better buy for safe dividend…

Read more »

Canadian Dollars
Dividend Stocks

How to Make $1,500 in Passive Income 4 Times a Year

Blue-chip TSX stocks such as Enbridge can enable investors to create game-changing wealth over the long term.

Read more »

Dividend Stocks

TFSA: How to Easily Turn $10,000 Into $500/Year of Passive Income

You don't need to be a stock market expert to turn $10,000 into a $500 of tax-free passive income. Here's…

Read more »

protect, safe, trust
Dividend Stocks

Worried About a Recession? 2 TSX Blue-Chip Stocks to Protect Your Capital

If you fear a recession coming on soon, here are two blue-chip Canadian stocks to add to your portfolio for…

Read more »

Silver coins fall into a piggy bank.
Dividend Stocks

New TFSA Investors: 2 Top TSX Stock to Create a Self-Directed Retirement Fund

Top TSX dividend stocks are now on sale for new TFSA investors.

Read more »

money while you sleep
Dividend Stocks

Worried About the Market? 2 Dividend Stocks That Let You Sleep at Night

Here's why Restaurant Brands (TSX:QSR) and Enbridge (TSX:ENB) are two top dividend stocks to buy in this uncertain market right…

Read more »

money cash dividends
Dividend Stocks

How 1 Absurdly Cheap Stock Can Generate $100 in Monthly Passive Income

You can generate $100 or more in monthly passive income from one high-yield stock trading at an absurdly cheap price…

Read more »

Retirees sip their morning coffee outside.
Dividend Stocks

How I’d Invest $1000 in February to Make Easy Passive Income

Looking to earn some extra passive income in February but don't have much cash? Build an easy portfolio with these…

Read more »