We don't need the Keystone XL

Posted by Fred Frailey
on Saturday, February 1, 2014

The U.S. Department of State’s Final Supplemental Environmental Impact Statement tells us what a lot of people already suspected: TransCanada’s Keystone XL pipeline is largely irrelevant to the future of the oil business in the U.S. and Canada. And maybe to the railroad business as well.

It did surprise many people, myself included, by concluding that the pipeline would not substantially worsen carbon pollution.

But the main point of the report, to me at least, is that whether or not the pipeline gets built to take diluted bitumen extracted from the Alberta tar sands to the Gulf Coast, the oil will get there anyway, mostly by rail. If the pipeline is rejected by the Obama administration, says the report, mining of this oil will continue at the same pace. Life will go on. Not much will change

The XL is meant to transport 730,000 barrels a day of bitumen (diluted by 170,000 barrels of diluent, to make the bitumen flow) and 100,000 barrels a day of light sweet crude from North Dakota to Steele City, Neb., on the Kansas border, where it will connect with other TransCanada pipelines and eventually end up at Texas and Louisiana refineries.

The report calculated that 12 unit oil trains a day from Alberta and two from North Dakota could handle this projected output. That would roughly double the present number of unit trains from Alberta and North Dakota. Two more trains from North Dakota is not a big deal. Twelve trains a day from the Edmonton, Alta., area to the Gulf Coast would strain the resources of Canadian National and Canadian Pacific railways, although I’m confident that between them, they can handle that volume. Then again, with no XL pipeline, that oil might go other directions, such as by unit train to Prince Rupert or Vancouver, B.C., then by supertanker to Asia.

What the report did not say is that by the time the XL would be completed (probably 2017 at the earliest), the infrastructure will be in place to make railroads highly competitive with the pipeline. By that, I mean insulated tank cars with piping for steam injection that would allow raw bitumen to be transported without the wasteful diluent, and loading and unloading terminals that can handle this bitumen. When this happens, I am pretty confident that railroads can underprice the pipeline.

So like I said at the start, we don’t need the Keystone XL. And if it gets built, it just may become an underutilized white elephant of the transportation world. — Fred W. Frailey

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