In spite of what TransCanada’s allies might claim, respected industry voices have made it clear that rail is not a viable option for widespread transportation of tar sands, and that without Keystone XL, much of Canada’s supply of tar sands will, in fact, stay in the ground.

Industry Analysis Proves Tar Sands Industry Needs Keystone XL

Contrary to claims by TransCanada’s allies, industry experts agree that, without Keystone XL
rail will not be sufficient to transport Canadian tar sands to market.

As arguments supporting the Keystone XL tar sands pipeline have been disproven one by one, TransCanada and their allies are now focusing their energy on making the case that rail is a viable option for transporting tar sands, in hopes of downplaying Keystone’s role in expanding development of dirty, carbon-heavy tar sands, and, subsequently, its impact on carbon emissions and climate change. A recent Globe and Mail opinion piece by a Canadian economist with ties to the tar sands industry made this argument, claiming that rail can easily fill any capacity gaps left by the rejection of pipelines like Keystone XL.

However, industry analysis has proven that this argument just doesn’t hold water. In spite of what TransCanada’s allies might claim, respected industry voices have made it clear that rail is not a viable option for widespread transportation of tar sands, and that without Keystone XL, much of Canada’s supply of tar sands will, in fact, stay in the ground.

According to Goldman Sachs’ June 2, 2013 analysis: 

“A majority of current rail flow is for light crude oil, since transporting bitumen/WCS carries additional logistical hurdles vis-à-vis light.

The first hurdle is that bitumen/heavy crude oil rail cars have to be specially made, so that their viscous cargo can be heated by steam in order to flow the crude out of car.

Secondly, heating a rail car so that the heavy crude oil can be unloaded takes more time than simply tapping a rail car filled with light oil, which means fewer heavy barrels per day can be transported than light.

Third, bitumen and WCS are denser than light crude, and since rail cars have maximum weight restrictions, fewer barrels of heavy crude can be carried in each car compared to light. Therefore, of the 150,000 b/d of crude transported by rail in 2013, we estimate that no more than 40% is likely to be heavy (and this number could prove closer to 20%).”

“In the event that either the Keystone XL newbuild or Alberta Clipper expansion (or both) encounter further delays, we believe risk would grow that Canadian heavy oil/oil sands supply would remain trapped in the province of Alberta, putting downward pressure on WCS pricing on both an absolute basis and versus WTI… given the long distances and higher cost of rail, we believe pipeline capacity growth is critical in Canada and the key to sustainably removing congestion in the system.”

According to an April, 2013 Reuters investigation titled, “Analysis: Oil-by-train may not be substitute for Keystone pipeline”:

“Rail is not a replacement for pipelines. It is going to be a niche business,” said Gary Kubera, the president of Canadian chemicals manufacturer Canexus, which runs a rail terminal just north of Edmonton that it is expanding so it can transport more heavy oil to the U.S. East Coast, principally for the production of asphalt.”

“The latest figures from the U.S. Energy Information Administration show heavy crude shipments to the Gulf Coast from Canada by rail have a long way to go to meet the 200,000 figure. They have not exceeded 30,000 barrels per day in any of the past 12 months, though they did rise by two thirds to 25,000 barrels per day in January, the last month for which there are figures, from 15,000 in January 2012… the logistical challenges to moving heavy crude by rail can be overcome, industry officials and analysts say, but the economics are not so clear-cut.”

According to the International Energy Agency’s 2013 Medium Term Oil Market Report:

“We do not, however, expect rail boom on a similar scale than in case of US LTO as most Alberta crude production is in the form of bitumen, rather than LTO [Light Tight Oil]. Shipping bitumen by pipeline is more complex than shipping light crude oil, as the former typically has to be thinned with diluents to flow through the pipe, usually in a ratio of 70:30. Moreover, as bitumen is denser and more viscous than light oil, more energy is needed to move it through the pipeline. In contrast, moving bitumen by rail requires less diluent − only about 15% to 20%− or no diluent at all”

Like Goldman Sachs, RBC Capital, TD Economics and other investment banks, IEA understands that the rejection of Keystone XL will undermine the viability of many new tar sands expansion projects:

“Although some analysts forecast that the differential will not impact existing production volumes, this Report reckons that incremental volumes are likely to be delayed if the discount persists. Whether or not the trans-border portion of the Keystone XL pipeline is approved will affect this discount and clearly the impetus for government action is there as the discount of Western Canadian Select (WCS) to other oil benchmarks reduces Alberta and Canadian government revenues. Higher-cost rail transport is an alternative option but would likely eat into producer margins, and thus might slow projects.”

For more information, contact:

Daniel Kessler, dk@350.org
Josh Mogerman, jmogerman@nrdc.org
Jane Kleeb, jane@boldnebraska.org
Ross Hammond, rhammond@foe.org