After Five-Year Wait, Keystone XL Builder Exploring Rail Options

Keystone XL pipeline builder TransCanada is in the business of transporting oil to its customers, preferably by pipelines, but it's CEO has stated for the first time it will turn to "more costly and and controversial rail" to fill the pipeline gap.

2 minute read

May 26, 2014, 1:00 PM PDT

By Irvin Dawid

"We are absolutely considering a rail option," (TransCanada) Chief Executive Russ Girling told Reuters on the sidelines of a conference in New York on May 21. "Our customers have needed to wait for several years, so we're in discussions now with them over the rail option," writes Catherine Ngai.

Girling said the firm was exploring shipping crude by rail from Hardisty in (Alberta) Canada, the main storage and pipeline hub, to Steele City, Nebraska, where it would flow into an existing pipeline to the Gulf refining hub.

But it's not as simple as just loading oil into tanker cars and sending them to Nebraska. Crude-by-rail requires considerable infrastructure that must be built and operated. "Jarrett Zielinski, chief executive officer of TORQ Transloading, which is building Canada's largest unit train terminal in Kerrobert, Saskatchewan, said TransCanada would need to load at least roughly nine unit trains per day to rival the takeaway capacity of Keystone XL (an initial capacity of 700,000 barrels a day, if they were to load raw bitumen." [Pipeline transportation requires bitumen to be mixed with diluents for efficient flow, often referred to as 'dilbit']

The oil originating from Saskatchewan is not like the heavy, sour tar sands from Alberta but light, sweet oil from the Bakken Shale Formation that has been associated with horrific and deadly explosions like the one last July in Lac-Mégantic, Quebec.

In addition to dangers associated with rail transport, the sheer quantity of trains required could overwhelm the North American rail network, warned Zielinski. NPR ran a story on May 19 describing "(a) huge slowdown in rail service delaying deliveries of grain and other commodities as well, like corn, coal and cars. Many of those affected are blaming the booming domestic oil industry for tying up the rails." 

A new North Dakota State University study says that freight rail delays have already cost that state's agricultural producers more than $66 million and the economic losses are mounting in sectors and other states, too, as just about everything hauled by train across the northern tier of the country continues to face delays; everything, Bob Dinneen of the Renewable Fuels Association says, except one especially hot commodity. [See press release from Sen. Heidi Heitkamp, D-N.D.].

That commodity would be shipments of oil from the Bakken formation in North Dakota and Montana, "now producing close to a million barrels of oil a day, 75 percent of which is shipped by rail."

For additional reading, see the May 13, Wall Street Journal guest opinion, "Stopping Keystone Ensures More Railroad Tank-Car Spills," by Terry L. Anderson, a senior fellow at Stanford University's Hoover Institution.

Thursday, May 22, 2014 in Reuters

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