Pipeline in limbo puts oil on rails

David Shaffer / (Minneapolis) Star Tribune /


Published Mar 16, 2013 at 05:00AM / Updated Nov 19, 2013 at 12:31AM

If President Barack Obama rejects the Keystone XL pipeline, large quantities of the Canadian oil it’s designed to carry will still roll into the United States — on railroads.

The proposed pipeline across Montana, South Dakota and Nebraska has provoked opposition from environmental activists who say extraction of crude oil from tar sands increases greenhouse gases that cause global warming.

As anti-pipeline groups have pressed the White House to kill the project, the oil and railroad industries have been building oil-loading terminals and buying tank cars to ship Canadian crude oil by rail.

“There is no permitting required — you can put oil on rail and nobody can complain,” said Sandy Fielden of RBN Energy, a Houston-based consulting firm that has tracked the oil-by-rail boom.

In the campaign against Keystone XL, the National Wildlife Federation and other groups have issued two reports since 2011 critical of pipeline safety, singling out Canada’s heavy oil called bitumen as especially hazardous. Neither report mentioned the risks of shipping it by rail.

“This is not something we had been working on,” Beth Wallace of the federation’s Great Lakes Regional Center in Ann Arbor, Mich., said of the crude-by-rail trend. Neither pipelines nor rail, she said, are “options for what should be our future.”

Yet the dramatic growth of the crude-by-rail business in North America illustrates how quickly shippers can adapt to a new option. North Dakota, the nation’s No. 2 oil-producing state behind Texas, ships the majority of its oil by rail from loading terminals built mostly in the past three years.

The two major carriers, Canadian National and Canadian Pacific, say 32 Canadian oil-loading terminals now operate on their rail networks, and more are being built, including some to load crude from the oil sands region near Fort McMurray, Alberta. That’s the same heavy bitumen that the Keystone XL pipeline would carry.

Tank cars won’t completely replace pipelines, officials in the oil and rail industries say. Yet even if the $5 billion Keystone XL is approved — and a decision could come soon on the presidential permit to cross the U.S. border — industry officials expect crude to keep moving by rail partly because it takes years to build pipelines.

Industry officials say tank cars offer one important advantage for shipping bitumen: It is so thick it must be diluted with other petroleum products to flow through pipelines. Bitumen can be shipped in special tank cars without dilution.

“We believe this business is going to be around for a long time,” said Wayne Bobye, CEO of Altex Energy of Calgary, Alberta, which has four Canadian oil-loading terminals and is building a fifth.