By BEN LEFEBVRE
Pipeline or not, lots of Canadian crude oil is headed to the
As the fight over the
Keystone XL pipeline drags on, US 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
bpd, according to one estimate, as Valero Energy, Phillips 66
and other US fuel companies make an end run around the
TransCanada's Keystone XL pipeline expansion would bring even more oil
-- 830,000 bpd, much of it heavy Canadian crude -- to the Gulf
Coast hub, something refiners have spent years and billions of
dollars preparing for.
TransCanada filed for a cross-border permit for the pipeline
two years ago, but the pipeline become a flash point in the
debate between advocates for North American energy supply and
environmental activists worried about contamination from spills
as well as increased oil consumption.
The White House isn't expected to make a final decision about
the $7 billion pipeline project until this summer at the
Meanwhile, large 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/bbl,
two-thirds the price of US benchmark West Texas
Not surprisingly, refiners are eager for the cheap Canadian
crude. "We want it on the Gulf Coast as soon as possible," said
Bill Day, a spokesman for Valero, which recently bought 2,000
rail cars for moving crude oil to its refineries.
Some of those cars will make the trek from Alberta to
Louisiana, where Valero is putting the finishing touches on
multibillion-dollar processing units specially designed to
handle heavy crude, which is tougher to refine than the light
crude that has recently become abundant in the US.
It can cost $20 to ship a barrel of oil by rail from Alberta
to the Gulf Coast, double the price for pipeline transit,
according to Peters & Co., a Calgary-based
investment-research firm. Even so, rail terminals in Alberta in
2013 will be able to double from the year before how much oil
they load into rail cars to more than 200,000 bpd, or 6% of
total Canadian oil exports, the firm said.
PBF Energy, which runs two East Coast refineries, said last
month it would ship 80,000 bpd of heavy Canadian crude by
rail to its refinery in Delaware, starting next
year. And Phillips 66 CEO Greg Garland said earlier this
year that the company was looking at heated rail cars to move
heavy Canadian crude to its West Coast refineries.
"Crude from Alberta is going to make it to market no matter
if Keystone XL gets built," TransCanada spokesman James Millar
said. "This increase in the rail market, that just proves
Rail shipments haven't cut into interest in the pipeline expansion, which has 95% of its
capacity contracted, Mr. Millar said, adding that Canada's
crude-oil production will grow enough that pipelines, barges
and rail cars will all have parts to play.
Some oil industry executives and analysts, meanwhile, have
raised concerns about rail accidents involving carloads of
crude oil, despite the rail industry touting a drop in accident
rates in the past decade.
Refiners have already increased their rail capacity while
waiting for pipeline construction to connect new oil
fields in North Dakota and south Texas, where innovations in
drilling techniques have led to increased oil production.
Producers of heavy oil are doing what they can do to help
the process along. Meg Energy Corp. of Calgary plans to use
Canexus Corp.'s new 70,000 bpd rail loading terminal to ship
crude out of Alberta by midyear.
Even if it costs more to ship the barrels via rail than through
a pipeline, Meg thinks it can make that money back -- and more
-- if it can just get the oil to refiners in the Gulf Coast and
"There's a higher cost by rail and barge, but it's the only
way to realize higher prices," Meg spokesman Brad Bellows
Dow Jones Newswires