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Oil Producers Look To Increase Rail Capacity

There are two related items of interest in the news this week. First, is that the agencies responsible for reviewing the Keystone Pipeline are attempting to figure out the feasibility of shipping large quantities of oil by rail:

U.S. officials weighing the climate impact of the proposed Keystone XL oil pipeline connecting Canada to U.S. Gulf Coast refiners are zeroing in on the question of whether shipment by rail is a viable alternative to the controversial project, industry sources say.

As it prepares a final environmental review of the $5.3 billion oil pipeline, the State Department has asked crude-by-rail executives about supply-chain logistics, market dynamics and potential obstacles to delivering 830,000 barrels per day of Canadian crude to Gulf Coast refiners, as Keystone would do.

The fate of the pipeline may hinge on the answers.

The second is that Exxon is considering building more rail capacity (which presumably cannot be forcibly opposed by environmentalists) to ship oil:

Exxon Mobil may build a new rail terminal in Edmonton, Alberta to move crude oil from its Kearl oil sands project amid questions about whether the Keystone XL pipeline will win U.S. approval.

The plan is a sign of the times. Oil sands producers are increasingly using rail to move growing production as the White House weighs whether to permit TransCanada Corp.’s Keystone project.

An Exxon executive mentioned the potential rail project Thursday on a call with financial analysts to discuss Exxon’s third-quarter earnings report.

David Rosenthal, Exxon’s vice president for investor relations, said the company is hoping Keystone will be built but added Exxon is looking at other options out of “prudence.”

“We are looking at a number of logistical opportunities that we have including pipeline routes and certainly Keystone XL will be there for the industry in general,” he said, according to a transcript on the financial news website Seeking Alpha.

He added: “But as would be prudent we are looking at other options including evaluating a project to build a rail terminal in Edmonton and then move some of that crude out of there into the lower [48 states] by rail and we are in the process of evaluating that opportunity and we’ll have more to say on that in the future.”

The second article seems to confirm that rail will be a pretty solid substitute for a pipeline, though plans to potentially increase rail capacity might not be enough evidence to convince the Obama Administration. Thankfully, there is more evidence:

 

9-4OilShipmentImage1Via IER

Additionally, you can check out this article from the Canadian Free Press:

However, due to a shortage of pipeline capacity, more and more oil and petroleum products are being moved by rail, truck, and barge. Those shipments almost doubled in 2012, and they are continuing to increase to move crude oil from the shale formations in North Dakota and Texas, and oil sands in Canada to U.S. refineries. Between 2011 and 2012, oil delivered to refineries by trucks increased 38 percent, crude moved on barges increased 53 percent and rail deliveries quadrupled. Because the nation’s pipeline infrastructure has not kept pace with growing domestic oil production, the market has had to rely increasingly on alternative transportation options.

It’s really hard to predict the future, but it’s hard to see how killing the Keystone Pipeline significantly changes the amount of oil produced by Canada. It’s also a bit curious that the United States feels the need to impose the views of a small number of environmental activists on Canada, but that’s another story.

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