How Rail Transport Can Improve Pricing for Western Candadian Oil Producers
The Benefits of Moving Crude Oil by Railway
With John Zahary President & CEO of Altex Energy
Duration: 48mins, Released Oct 27, 2020
“The system is safe. It’s proven to be safe and it's proven to be environmentally friendly and provides a very safe way to move the product in addition to a more economic way.”
In this webinar, John Zahary discusses how rail transport can improve pricing for Western Canadian oil producers. John is President & CEO of Altex Energy, a recognized leader in the delivery of crude oil to market by rail. He's held numerous executive roles in technical engineering and finance.
About The Pandell Leadership Series
The Pandell Leadership Series is a collection of free webinars featuring presentations by energy industry experts in a variety of specialized fields. Topics range from global business issues to recommended best practices in oil and gas; pipelines; mining; utilities; and the renewable energy industry (including wind, solar, hydrogen, geothermal, marine & hydrokinetic, nuclear and biomass power).
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ELIZA FROM PANDELLThank you so much for joining us today. It looks like we have a good group of people already online. And we are here today for our second in the Pandell Leadership Series. So, my name is Eliza. I’m a Customer Engagement Specialist here at Pandell. I would like to invite Dean, who’s our Senior Account Executive here at Pandell, to say hello to you and give a quick introduction.
DEAN FROM PANDELLThanks Eliza. Good afternoon everyone. I’d like to introduce John Zahary today. John holds a Bachelor of Science in Mechanical Engineering from the University of Calgary. As well as a Masters of Philosophy in Management Studies from the University of Oxford.
John’s worked in many capacities of oil and gas including upstream, midstream and downstream. And John has experience in various areas; technical engineering of course; operations roles; as well as financial roles.
John has worked as an Executive, C-level, Board of Directors, in many, many oil and gas companies over a distinguished thirty-seven-year career. Some of the companies he’s worked with includes Imperial, PanCanadian, Petrovera, Osum, Sunshine Oilsands, and I worked with John over quite a few years at Harvest Operations.
You know when John left Harvest in 2012, I will say it was a blow to the staff and to Harvest. However, he had finalized the future survival of Harvest, very, very well and he moved on to greener pastures.
Today, John is President and CEO of Altex Energy. They are a private rail terminal company, which is an industry leader in providing services to load crude oil on railcars, for movement, not only in Canada but North America and globally.
It’s my pleasure to introduce Mr. John Zahary.
JOHN Dean, thank you very much. And Eliza, thank you to you as well. And thanks to Pandell. Good afternoon to everyone listening in and I appreciate your interest in this story. I’ve titled it, “The Benefit of Moving Crude Oil by Railway.’
While we are on this cover page and just to give a sense of what an Altex rail terminal looks like, or what a crude oil rail terminal looks like. The one on the left is our Unity Saskatchewan terminal. The one on the right is our Lashburn Saskatchewan terminal. You can get a sense there of just what is involved. But you can see the tankage that stores the oil, that comes in by truck, stores the oil in the tankage on the right-hand side of the Lashburn picture. They’re a bit further along in that picture but trucks come in, there’s a gas pump type set up that allows the trucks to unload at a gas pump. It takes the oils out of the truck and puts in the tank. And then right in sort of in the centre of the picture is the loading rack that loads the oil into the railcars. And obviously you can see the railcars there positioned, either empties that have returned to be filled up or full ones waiting to be moved to market.
So, I’ll step you through exactly how that works and why that makes some sense. But before I get started maybe I’ll just give you a sense of who Altex is. Altex is a rail terminal company. We build, own, operate the rail terminals that are located along the railway. Our terminals are all located in heavy oil, oilsands producing areas. We load most of the heavy oil and the oilsands that gets on railcars in Canada goes through an Altex terminal. And it’s certainly most of the undiluted heavy oil and oil sands. Oil that gets on a railcar in Canada goes through an Altex terminal. We load other products, taking advantage of the lower cost transportations associated with using the rail system. And we move a good amount of the oil that moves out of the system. It was Altex that in partnership with Canadian National Railway that started the business about a decade ago. And still is a dominate player in the business. And we use a variety of different technologies, patents and technology that allow us to provide services to customers that improve their supply cost.
The terminals are located as you can see on this slide, they’re all in heavy oil, oilsands producing areas. So, we’ve got two. Our largest is at Lashburn as you can see. That’s just east of Lloydminster in the middle of the kind of the Lloyd heavy oil producing region. From that terminal we move oil from the Cold Lake Oilsands Region, the Athabasca Oilsands Region as well. That’s the kind of largest and the flagship of Altex terminals. But we’ve got what I’ll call medium sized terminals, they’d be probably the fifth and sixth largest terminals in Canada for moving crude oil, but they’re what I’ll call medium sized terminals. And then we’ve got a small terminal up in the Peace River Oilsands Region as well.
But to step back and just give you a sense of kind of where the business came from. Altex was set up about fifteen years ago by private equity firm. It was set up really to deal with one of the most significant problems that erodes value for Western Canadian Oil Producers, which is most of the oil produced in Western Canada is heavy oil or bitumen. It’s heavy, it’s thick and in order to make that go down a pipeline you have to dilute it with condensate, light hydrocarbon typically condensate. The problem is that light oil, that condensate is worth far more in Western Canada then it is at the refinery sites. So, it’s worth far more as a diluent than it is as a refinery feedstock. And so, we in Western Canada import three or four-hundred thousand barrels a day of condensate. And so, we move it to Western Canada so we can cut the heavy oil that we produce in Western Canada with it and then we move it back to where the condensate just came from.
If it sounds like there is two extra moves in there to get it back to the same place where you were when you started? There are two extra moves in there, which will cost about twenty dollars a barrel to move the condensate into Western Canada so it can be moved back to where it came from. The implication is that this is a significant issue. So, it was really that problem that was identified by Altex early on the process and by Azimuth. And they set out to solve that problem by finding a more efficient way to move Western Canadian production to market without having to incur this loss associated with bringing condensate to Western Canada so we can ship it back to where it came from. So, that was really the original identified problem and identified objective for Altex when it got set up.
Now over those fifteen years, in particularly over the last ten years we’ve also had the other problem that there just isn’t enough, it’s been very challenging to build enough pipelines to keep up with the growing production in Western Canada. So, just having additional egress or additional opportunity I guess with the pipeline system to move the oil out of Western Canada to markets has been a significant issue which has led to the bitumen bubble, the great contraction of price that we saw in the fourth quarter in 2018. And it affects us even today because the pipeline system hasn’t been effectively expanded, through stories I think everyone has heard, hasn’t been effectively expanded so that it can remove product from Western Canada. Thus, you have a lot of product on product competition which has led to lower prices in Western Canada. So, we suffer from very low prices in Western Canada. It’s been a great problem that has gone on for a number of years. Certainly, the additional egress associated with using the rail system has been very effective at clearing that backlog of production and getting it to market.
So, what is the advantage of rail? There are a number. Certainly, the fact that the rail already exists is a huge advantage. Canada has enough…there is enough rail cars moving every day to remove about fifteen million barrels a day of oil out of Western Canada. Obviously, it doesn’t do that for a number of reasons. Number one, we don’t produce fifteen million barrels a day of oil in Western Canada. And it would only do fifteen million barrels a day in Western Canada if every railcar was full of oil. Now obviously it isn’t because the rail system is also moving cars, Christmas lights, and agricultural products. It has a huge capacity on the rail system to move product around the country and it moves a vast amount of product around the country. But certainly, oil or frack sand, or other products that are needed or used in the oil business is certainly a great opportunity to use existing rail system in-order to move that to market.
It also of course, gets beyond the current oversupplied markets. So, most of the infrastructure that was built into Western Canada to get Western Canadian production to markets, all heads to Southern Ontario or to the US Midwest. That’s been a great market for Canada over many, many years and will continue to be a great market for Canadian production. The problem is US production has increased and demand has not increased in most parts of North America. We’re jamming more and more Western Canadian oil into over supplied markets. The advantage of rail, as I’ll show in a moment, is it moves to a variety of other places as well which are much more robust markets and are willing to pay much higher prices for oil. And that is an opportunity to use the rail system to get to those markets.
And finally, and importantly the rail system has been around for a long time, it’s safe, it moves lots of different products, it’s safe, it’s reliable and most significantly as I’ve sort of focused on and will continue to focus, on it’s very efficient. It’s about one tenth the price of trucking on a per mile basis. So, if you want to maximize the prices of producer, you want to get it out of trucks as soon as possible, and you want to get it in rail, and you want to get it to the best markets that you can get it to.
To step back, and I appreciate for many people myself included, until I started spending more time on this I didn’t actually know as much about the rail system as I probably should have. I’ve seen earlier in my career…I did have the opportunity to work for PanCanadian who had a sister company Canadian Pacific Railway. So, I did that and so I had some background with the rail system as well and I’ve seen them going by on the road more than once, but the rail system is very extensive.
So, this map shows the rail system that goes across North America. The Canadian National Railway is the one shown in red. Canadian Pacific is the one shown in brown. And you can see the five US railways, Burlington Northern Santa Fe, Union Pacific’s, CXS, Norfolk Southern, Kansas City are the five US rail systems.
If you look at the map what should be crystal clear is the railway goes everywhere, including through Western Canada. And so, you can load things on railcars in Western Canada and you can get them to whatever markets are paying the highest price. So, you are not confined to the pipe system. The pipe system moves a lot more oil than the rail system does, but the pipe system tends to flow where the pipeline is and no where else. So, the rail system provides flexibility to producers and it also provides flexibility to the refineries who can access those barrels in Western Canada. Which in many cases are cheaper than barrels they can find anywhere else in the world. And so, utilizing the rail system buyers can get at the cheap barrels and the producers of those cheap barrels can get at to markets that can pay them higher prices. In many cases that’s around North America but as I’ll show in a minute as well the dynamics of the international oil and gas demand. It means that the demand to North America, Western Europe has been pretty flat for a number of years but demand around the world continues to increase at quite a very significant level. And that increase is largely driven by the demand in East Asia. So, East Asia is looking for significant production.
This slide is trying to convey what I had talked about before that we sell Western Canadian Select or the type of heavy oil we produce in Western Canada. Typically add a ten to twenty-dollar discount from West Texas Intermediate, a light crude. It’s also, both of those are land locked crudes. Western Canada Select obviously in Western Canada at Hardisty. West Texas Intermediate is in Cushing, Oklahoma. They’re both inland North America destinations. The highest price is on the coast because all coastal buyers of oil, including coastal refineries anywhere in North America, tend to pay the Brent price for oil. And Brent has been running two to five dollars a barrel more than the WTI has for a number of years after historically have run at a discount. And that is only reflective of supply, demand fundamentals, and infrastructure fundamentals. That it is become, as inland North American production has grown and demand has not grown, that oil has to get to displaced imported crudes on the coast. And so, you need infrastructure to do that. You need infrastructure that gets you to the coast to do that. And if you have that infrastructure you can move to higher priced markets. So, all of these factors with the addition of the price of diluent in Western Canada that erodes quit enormously, what a Western Canadian producer gets paid, all of those factors are important in driving demand towards this diluent free method of accessing better markets.
This is a busy slide and I’m not going to go through it in great detail, but this slide the underlying map here is the pipeline grid. Shown in red there are the main Enbridge conduits to move oil out of Western Canada. And as well you can see on there the TransCanada and the Trans Mountain Pipelines that also move oil out of Western Canada. So, the system is set up. It’s set up to feed that oil out of Western Canada to those robust markets in the US Midwest and Southern Ontario. The problem is those markets aren’t growing and are also serviced by growing production in those regions. So, we’re the furthest away production in Western Canada and we’re trying to get into markets which are over supplied. Can we not find better markets?
That’s the first point, the real point of this slide is to talk about the problem that we take on and say if it’s worth fifty dollars in the refinery area we move it to Canada. So, it costs about ten dollars to get it to Canada, so now it’s worth about sixty dollars. We mix heavy oil. A third to a half of the blend is going to be the condensate and we send it back to where it’s worth about fifty bucks. So, it’s a very creative way of turning fifty dollars into thirty dollars, or forty dollars into twenty dollars. But can we not find a way to do it better? And a way to do it better is to find a way to move oil without putting the diluent in and that was and is a major driver behind what Altex has done now for a decade in conjunction with the Canadian National Railway. But we take oil from producers, put it in rail cars and send it to people. We don’t need the condensate. The producers don’t need to buy the condensate. It’s a very efficient way of moving the oil to people who want to buy it. And because it’s a very efficient way of moving the oil to people who want to buy it, they can afford to pay you more for the oil. Which is we all know in today’s economic situations if you can get a buck or two more for a barrel of oil today it’s very significant in the economics.
So, that’s the diluent driver. This is really the egress driver. I won’t belabour this, obviously anybody who’s worked in the business, as we all have seen the great challenges of getting pipelines built, getting them up and running, keeping them up and running. A lot of projects have been proposed and not completed. This is a significant challenge if production is going to continue to grow in Western Canada we’ve got to find some way to get it to markets because obviously we’re not consuming it in the region in where it’s produced. So, just having additional egress options is vital. The railway provides that opportunity.
This maybe the slide that is the most significant. This is, in the deck I’ve got here. This is actual data for a field which is about seventy-five miles from the Altex Lashburn terminal. I’ve got access to the prices that buyers will pay for that oil. The producer, typically as it does with pipelines, just sells to a buyer at the pipe terminal, or sells to the buyer at the rail terminal. But if you look at what buyers at rail terminals are prepared to pay versus what buyers that pipe terminals are prepared to pay. It can, as you can see on the graph here, it’s not as steady. Sometimes you can make a buck or two. Or if you sell to a buyer at a pipe terminal. But the realty is sometimes you can make thirteen bucks more if you sell to a buyer at a rail terminal. So, if you average those numbers and you’re looking for the highest price you can get for the oil you produce, you’re probably, if you’re not selling to somebody at a rail terminal you certainly should find out what you could get if you sold to somebody at a rail terminal, because one, two, three, four bucks a barrel is obviously very significant. In a world where we are all trying to become more profitable, stay profitable, become more profitable, survive through these challenging times. So, every dime matters let alone every dollar. And there’s dollars on the table here. This is a significant issue that I think everybody should be giving serious consideration to.
So, as to where it could go. This uses data from the BP Statistical Review which gathers production and consumption data on an ongoing basis and publishes their data every year. But if you look around the world and shown here, the blue column to the left, and it’s done by regions here. The blue column to the left is the amount of production in millions of barrels per day in the region. And the red bar to the right is the amount of consumption in each one of the regions.
Focusing first on North America, given that we are all in North America or most of us are. You can see we’re actually quite balanced today in North America. That wasn’t always the case. And certainly, these numbers have changed quite significantly even over the last few years. But right now, North America is pretty balanced. Twenty-four and a half, twenty-four point six, twenty-four point seven million barrels a day of production and the same amount of consumption.
South America is pretty balanced. The former Soviet Union, Russia and former Republics are bigger producers then they are consumers. The Middle East is a big producer than it is a consumer. And the area that is the biggest consumer relative to its amount of production is East Asia. Production there, you know eight million barrels a day, not insignificant of course but consumption in the region is thirty-seven million barrels a day. So, maybe not surprisingly that is probably the market that we as an exporting nation for oil, as I’ll show Canada on the next slide, that seems to be the logical place to be selling our product or more of our product is to the people that are most interested in buying it. And consumption in those regions is vastly more significant than production in the region. So, countries like Japan, Korea are big consumers of oil. Nominal or non-existent producers of oil, they’re looking for oil. Although this is an irregular map because ordinarily every map, you’d see of North America would have the Atlantic Ocean in the middle of the map instead of the Pacific Ocean. I learned long ago and still believe it to be true, the world is round, and the West Coast of North America is actually quite close to the East Coast of Asia. And that is the highest priced market for oil. Can we not find a way to get more oil from Western Canada which is a lot closer to the western side of North America than it is to the eastern side. Can we not find a way to get that oil from Western Canada to Asia, and in so doing get a better price for oil.
You can see, this is taking data from the same source, but breaking it up into North America. The US is still, not insignificant, was vastly more an importer of oil a number of years ago, but US production has grown quite significantly while the demand hasn’t. Canadian demand has also been fairly flat for decades now, but production has grown. So, Canada is an exporter, has been an exporter for many years. And this actually, to some extent, is a low ball or is a lower type of representation of the amount of exports that we have because Eastern Canada, the refineries in Halifax, Newfoundland, and Quebec are actually large importers of US oil to run in those refineries. While Western Canada, if you did this on Western Canada versus Canada overall, Canada would be even exporting more oil than is actually shown kind of here. But Canada is a significant exporter of oil and almost all that oil, rightly or wrongly goes to the US. That’s our neighbor and will no doubt always be the biggest market for Canadian oil but certainly isn’t the highest priced market for Canadian oil.
How do we get it there? It actually isn’t that far away between the western part of North America and the eastern part of Asia. The red and blue lines show trading here that goes on. How does Asia get its oil? A lot of it from the Middle East, increasingly now it’s coming from Russia. Not so much Canada but the US is increasingly exporting to Asia as well. The North American numbers have switched a lot but the one steady in this is that Canada, because it doesn’t have a lot of infrastructure flexibility has been a steady exporter of oil to the US but today Europe who used to import oil. Europe, Russia who used to import into the US is now actually taking oil out of the US. So, these numbers have changed quite significantly over the last few years. I think the takeaway from looking at this, is can we not also get to those higher priced markets and in so doing, improve the price for Western Canadian producers? And doing that would be getting more oil to Asia.
And finally, before I conclude here, this talks about rail safety. There’s been, all to often I think in this industry we end up fighting with ourselves, the only point I want to make here is railways are safe. They move a lot of different products. Oil is one of them. Certainly, if you are moving the type of oil that we produce in Wester Canada, heavy oil. That oil is a lot more like asphalt than it is like gasoline. You can’t…take heavy oil or bitumen you can’t catch it on fire with a blow torch. It’s a very safe product to move on railways. If you put the condensate in it, obviously it is much more flammable with the condensate in it. And so, the other advantage of the model that we are talking about here is to find ways to move oil without putting the condensate in, not only is it more economic, is it more environmentally friendly? You don’t have to pump the condensate to Canada and then pump it back again. It’s also safer because the heavy oil we actually produce in Western Canada is non-flammable. It has the flammability akin to what the road has. Not akin to what gasoline might be or some of the other products that are obviously much more flammable. So, the system is safe. It’s proven to be safe and its proven to be environmentally friendly and provides a very safe way to move the product in addition to a more economic way.
This particular slide actually shows the flammability of the type of heavy oil or bitumen that typically Altex handles. So, obviously there are in hydrocarbon there are…and to the right if you start at the top of the list, I mean propane is very flammable, butane, gasoline you can see that different hydrocarbon products but as you get down to the bottom it’s asphalt. If you want to light asphalt on fire, it’s going to take quite a bit of effort to start the road on fire. So, I think the degree of flammability is associated with that product is actually extremely low obviously.
ELIZAThank you John. That was very interesting. And we do have some questions. Are there any port capacity availability in BC to take heavy oil from Alberta and move it on to Asia on ships?
JOHNThere certainly is port capacity. In fact, Altex has helped our customers export oil through US Gulf Coast terminals a number of years ago. Even when you couldn’t export American oil out of the US at the time. With regulation you could export Canadian oil. So, we did move Canadian oil for customers down to the US Gulf Coast. They loaded it on ships and exported it. We’ve also helped customers move oil from Western Canada to West Coast ports in the US. That’s been loaded on ships and moved to Asia. And we’ve helped customers move oil through ports in Canada as well.
Now one of the restrictions, and you do run into regulatory restrictions, but in fact exporting oil out of most ports in Canada on the west coast is actually something that C-48 doesn’t allow you to do. And so when we went and helped the customer move the oil to the US port it was because it was allowed to be exported out of the US but was not allowed to be exported out of ports in Canada. So, there is, obviously there are in the lower mainland and in Prince Rupert there are ports. They do export hydrocarbons, propane, butane, LNG is being worked on, gasoline, diesel, all of those products can be exported but you need regulatory approval to move it in a bigger way and that can be done. Now, it is being done as well through Westridge terminal, so there is ability in the lower mainland to do it. And it is being done on the lower mainland as well. So, there is capacity, it needs work. Like most things people aren’t teed up to do it unless somebody wants to do it. But if somebody wants to do it, not only has it been done, it can be done in a bigger way on a go-forward basis.
ELIZASo, the next question is, How did the cancellation of Government contracts for oil by rail in Alberta effect the industry?
JOHNWith respect to the first question, what is the price? It has a number of different factors. So, you know when we talk about it too, I talk about it. I talk about the WTI, WCS differential as an important indicator. But as I was sort of going through the presentation it really, it’s a Brent WCS. And to that, at least for Altex which moves the vast majority of the undiluted oil, you also have a condensate differential.
But as an example, while the total industry volume, the other sort of three main terminals that move a lot of oil on rail as well, they saw in the last six months they’ve moved almost no oil on rail in the last six months. Our volumes went down twenty or thirty percent, not a tonne. But the driver is the undiluted, is much more attractive product to move on rail, much more economic product to move on rail. So, the stuff that Altex and CN have been moving has gone down but not as dramatically as the stuff that the stuff that has been moving diluted. What I think people should take from that is the type of differentials that we’re seeing today, WTI, WCS about eleven dollars. Condensate worth a few bucks a barrel more than light oil is. Brent WTI about two dollars is quite economic. And that’s why you’re going to see volumes increasing. So, the big driver here certainly the differentiated driver between the diluted and undiluted movements is the price of condensate. But you’re going to see the undiluted movements also increasing. The question about returning, what comes back? The rail system has typically has a system of pricing where railcars are returned empty. So, in most cases, although it’s not intuitively obvious that this is the way it should happen, we have helped customers load oil on railcars in Western Canada, move that product to say the US Gulf Coast region and the railcar will come back empty. In almost all circumstances. At the same time we were doing that, and we are not doing this right now, but at the same time we were doing that a couple of years ago, we were actually helping customers who were loading railcars with condensate in the US Gulf Coast. They were railing it to Canada, and we were helping them to unload it. And they were returning back to the US Gulf Coast empty.
There is an optimization here, and in fact the Canadian and US patent on this is owned by Altex and has been for a number of years, but it would be intuitively more sensible if oil went one direction and condensate came back the other direction. We actually do own the patent on that. Although we have done it, we haven’t ever done it in any great quantity. It is just, you know for most of our customers it has just made more sense to move product one-way and then the container heads back empty whichever direction it’s going.
ELIZASo, this last question, since rail transport shares capacity with other commodities, do you see a future-challenges with having enough capacity for high oil production from Western Canada?
JOHNCertainly, there are many, many commodities on the rail system. The rail system is very large obviously and companies like Canadian National are very large entities. I think the fourth largest publicly traded company in Canada is Canadian National. So, it has a huge enterprise value. And Canadian Pacific would be the tenth or twelfth largest publicly traded company in Canada. So, they are very large entities. Hundred-billion-dollar type, plus or minus entities. And the system is vast but there are many commodities on the railway. Over the last number of years, and it depends on how much of all the different commodities are moving. How much grain is moving, how many cars are moving, forestry products, coal products. And so, everybody is competing for space. The railway also has an ability, the railways and CN has expanded its’s workforce, its expanded its building locomotives over the last few years. Which haven’t been done over a number of years. So, you don’t necessarily have to lay more track, but you might need more people, more locomotives in order to improve the capacity in the system. It’s an important question. Just how much product wants to move on the railway, but I think if you just look out the window in Calgary to look at the railway that’s moving through town here. It’s not like railways are chockablock, one after the other like you might see in Europe or in other parts of the world. The rail itself has capacity but to move more product…I should also note oil is about two percent of what moves on rail. It would be less than that now out of Western Canada or in Canada about two percent of all the railcars moving oil. So, even if you double that it doesn’t actually make a huge difference in the amount of stuff moving on rail because it’s just such a small amount of what moves on rail today. You know an important question and an important question for everyone, and the data is for other people who want to use the rail system as well but the amount of oil moving on the system is trivial. It’s not trivial to Altex, it’s what we do most of the time. What we are concentrating on. But the amount of oil moving on the rail system overall is not a big number. It’s not like it’s kicking anything else off the line.
ELIZAWe still have a few more minutes and another question came in. So, if this one is a technology question. You mentioned that you created your own proprietary system to manage facility logistics. Curious why the decision to do this versus choosing a commercial system out of the box?
JOHNSo, early on when Altex was being set up and starting with Canadian National this idea of introducing crude oil transportation on the rail system. It was important to Altex that we look at technology. This is a new and creative way of solving a problem for Western Canadian producers and consumers of Western Canadian oil or potential consumers. And so, the company did actually patent railcars and we do own the patent on the modern railcar. So, we own a Canadian patent on that. We own the Canadian and US patent on the forehaul, backhaul. So, using the railcars to move oil in one direction and condensate in the other direction. We own the patent on that, and we own the patent on moving oil by truck into a terminal. Moving that heavy oil from truck into tanks and from tanks into railcars. So, those are all patents that Altex holds. And the other technology thing that we did early on, or one of the other technology things, is we created our own logistics system.
And so, the logistics system was created not only to manage flows within our terminal. Often the oil is coming out of the producer’s tank on the well site and it comes into our tanks at our terminals. So, we are custody transfer. So, we have to meet Alberta and Saskatchewan, where our producers are producing their oil, we are doing the custody transfer for government purposes. So, we needed to have good control of the oil that’s coming in by truck, management of that oil in the tanks, and then the movement of that oil from the tanks into the railcars. So, that’s all part of our logistics system or our SCADA system. And then in conjunction with that is an ability to help our customers, either the refiners who are getting the oil because they need it to run through their refineries, or, the producers who want to know when they’re going to get paid. It’s a way of making sure we that can track where the oil is on the system so when it gets to destination the producer knows they’re going to get paid.
I should also note that, the rail will get you the oil to market a lot faster than the pipeline system will. If you put a barrel of oil into the pipeline it’s going to take thirty days to get to Chicago or forty-five days to get to the Gulf Coast. When you put it in a rail car it’ll get to the refinery in Chicago in four days and get to the Gulf Coast in eight days. So, potentially for the producer that’s an ability to accelerate payment quite significantly because its going to run through and already gone through a gasoline engine in New York before it would even get there on a pipeline. So, why we did it is to make sure part of our customer service offering we could meet all the regulatory requirements for custody transfer. That producers could feel confident that they were getting paid for every oil they produced. So, the refiners could get confident that they were paying who they should be paying for the oil. And so, we could track the oil to destination to give producers comfort, and refiners comfort that the oil will be there when they need it to be there. And will be there as fast as possible.
So, it was a not insignificant investment to be honest. Internally generated IT, especially for a small company like Altex, but it was something that didn’t exist at the time as the business was being introduced and so we took an IT platform and brought it to help solve a problem I guess that wasn’t being done at the time.
ELIZAAlright it looks like we have answered all of the questions. So, once again John thank you for your time today it was so interesting. Thank you very much for joining us today folks…And we hope to see you at the next event.