Oil tracks: The Keystone XL pipeline to the U.S. heartland may or may not get built. Either way, railroads are gearing up to ship more oil.
Canadian Pacific has seen a dramatic increase in crude oil shipments in tank cars. This crude-only unit train passed through St. Paul last week. Unit trains of up to 120 cars are loaded with crude at terminals in North Dakota and Canada.
If President 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 with tracks through Minnesota.
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 sprouting of the oil-by-rail business in Canada is important to Minnesota because the two major carriers, Canadian National (CN) and Canadian Pacific (CP), have gateways into the United States through the state. CN tracks go through Duluth, while CP has a route through the Twin Cities.
The railroads 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.
Increase in crude hauling
Canadian National, whose rail network stretches from western Canada’s oil region to the U.S. Gulf Coast, says it hauled 30,000 tank car loads of crude last year, a sixfold increase over 2011. It expects that to double this year.
On the Canadian Pacific, whose U.S. headquarters is in Minneapolis, crude oil shipments also jumped last year, partly because of the boom in North Dakota, where the railroad has major operations. CP does not break out its Canadian and North Dakota oil shipments.
The Gulf Coast is a target destination for Canada’s heavy crude because many refineries there have technology to process such oil.
On the East Coast, PBF Energy last year built a rail terminal at its Delaware refinery to accept heavy crude. The company also ordered enough rail cars to carry 80,000 barrels of Canadian crude per day.