Can Rail Fill the Gap if Keystone XL Isn't Approved?

Ben Lefebvre of the Wall Street Journal writes on the role that rail is filling - and will fill, regardless of whether the controversial pipeline is built to transport tar sands oil from Alberta, Canada to the U.S..

As the fight over the Keystone XL pipeline drags on, U.S. refining companies are turning to railroads to bring crude from Canada's oil sands to refineries along the Gulf of Mexico. Shipments are set to double this year, to more than 200,000 barrels a day, according to one estimate, as Valero Energy Corp. and other U.S. fuel companies make an end run around the much-delayed pipeline.

Rail's ability to transport the crude was one reason why the State Department report (NYT article) concluded that "environmental and climate change impacts are manageable (and) could provide Mr. Obama political cover if he decides to approve the pipeline." 

And (the 2,000-page document) says that alternate means of transporting the oil — rail, truck and barge — also have significant environmental and economic impacts, including higher costs, noise, traffic, air pollution and the possibility of spills. The study does not say that one method is better for the environment than another. It does say that a spill is more likely for rail transport, although the report says that the volume of oil spilled from a pipeline is likely to be greater.

While cost of rail transport exceeds pipeline cost of moving oil, the oil glut caused by the inability to move much of it is changing the market economics, making more expensive modes feasible, writes Lefebvre.

(L)arge amounts of the oil are piling up in the province of Alberta, driving its price down. Western Canadian Select oil prices recently averaged just over $65 a barrel, only two-thirds the price of U.S. benchmark West Texas Intermediate.

Presenting an opposing viewpoint, Anthony Swift of the Natural Resources Defense Council blogs that rail "is not an economically viable alternative to Keystone XL."  He rebuts the example used by State Dept report of oil producers using rail to ship oil from the Bakken basin in North Dakota because "oil producers facing price discounts and transportation constraints have turned to rail to move their crude to market." Yet those same restraints appear in Alberta as noted above.

According to Bloomberg News, oil shipments "averaged about 456,000 barrels a day in the third quarter (of 2012), according to the (American Association of Railroads).

Swift goes on to analyze the actual movement of oil from Canada. "Nearly two years since State’s 2011 prediction, there has been little evidence of a North Dakota trajectory for tar sands to the Gulf by rail.  While rail data for crude oil across the Canadian border isn’t available for 2012, there is no evidence of significant volumes of tar sands being shipped by rail to Gulf Coast refineries", he writes.

Environmentalists, who are "reeling" at the State Dept. report, may not be the only ones with a stake as to whether the pipeline is built. As previously reported here, Venuzuela should be concerned because 40% of there crude oil exports - a heavy oil similar to Alberta's bitumen, is refined at Gulf refineries that are designed to process heavy oil - be it from Canada or Venezuela. E&E reporter Blake Sobczak writes about the threat to Venezuelan imports:

"There isn't enough capacity to refine both the Canadian oil and the Venezuelan oil," said professor Erick Langer, director of the Center for Latin American Studies at Georgetown University and an expert on Venezuelan politics. "So if the pipeline is built, then Venezuela might be up a creek without a paddle, because they won't have anywhere else to refine the oil."

[Note: Full access to article may be time-limited to non-Wall Street Journal subscription readers after March 18].