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“We have seen a drop in conventional heavy output and the production that remains is going to pipe as the economics is better,” Zielinski said.

At Calgary-based Altex, unfavourable transport economics have left the company using just a third of its 100,000-bpd capacity, forcing it to cut its headcount by 50 per cent.

“There is probably about 300,000 or 400,000 bpd unused rail capacity,” Zahary estimate, noting that the 35-odd small ‘mom-and-pop’ rail terminals across Western Canada are mostly “shut and gone.”

“The rail terminals business in Canada is migrating back to where it started six years ago with Altex and (partner) Canadian National focusing on heavy oil,” he said.

Heavy oil’s margins are better as producers do not need to mix bitumen with expensive diluents to ship on tank cars as they do on pipelines.

Calgary-based Torq, which has also seen layoffs, is developing a multi-commodity business to reduce its dependence on crude rail shipments that once made up half its business and enticed private equity giant KKR & Co. to pump $250 million into the business in 2013.

“We also see more niche opportunity in the crude-by-rail space where we take the product from one region to a much shorter haul to another region rather than the Gulf Coast,” Zielinski said.

But rail serves as a safety valve. The week-long shut down of TransCanada’s Keystone pipeline in April highlighted rail as a valuable backup and helped companies such as Altex secure new business, even though the pipeline was shut for only a short time.

Further over the horizon, Enbridge expects a shortage of 500,000 barrels per day of pipeline capacity through 2021 as production increases, which should keep rail terminals engaged.

“We are waiting for the next pinch because production continues to grow,” Zahary said. “If a pipeline went down or there was a crossover point between production and takeaway capacity, people will call their friendly, neighbourhood rail man.”

yhussain@nationalpost.com

@YAD_FPEnergy