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Anthony Swift’s Blog

Keystone XL, not rail, linchpin for tar sands expansion

Anthony Swift

Posted April 9, 2013 in Moving Beyond Oil, Solving Global Warming, U.S. Law and Policy

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Tomorrow I will testify before the U.S. House of Representative’s Energy and Power subcommittee on the impact of the Keystone XL pipeline on tar sands production and the climate emissions associated with it. Financial analysts, industry commentators, and the environmental community agree that Keystone XL is a lynchpin for tar sands expansion. However, in its draft environmental review of the project, the State Department suggested that rail would take Keystone XL’s place if the pipeline is rejected. Many of the pipeline’s proponents have jumped onto this idea, suggesting that even now, the controversy surrounding Keystone XL was causing tar sands to move by rail and barge instead. The two problems with this argument is 1) there is data showing how Canadian tar sands is getting into the United States and 2) Canadian tar sands not moving by rail. Records from the U.S. Energy Information Administration (EIA) show that in December 2012, no more than 21,000 bpd of heavy crude from Canada – including tar sands and conventional crude - processed by Gulf Coast refineries could have entered the United States by rail. That’s less than 1% at a time when prices for tar sands at the Gulf were up to $50 a barrel higher than they were in Alberta. Contrary to State’s conclusions, the Keystone XL pipeline is the linchpin for expanded tar sands production and the substantial climate emissions associated with it. 

There is no question that producers of light conventional crude from North Dakota’s and southern Canada’s Bakken region have caused a rapid expansion of crude moving by rail in the United States. Unfortunately, many folks assume that the rail explosion in the Bakken oilfields is currently being replicated in northern Alberta’s tar sands. It’s not. And that fact in itself should give observers pause.

From 2009 to 2013, transport of oil by rail in North Dakota increased from a few thousand barrels a day to over half a million. In January 2013, over two thirds of light crude produced in North Dakota was transported to refineries by rail. As they turned to rail, domestic light oil producers have even rejected major pipeline proposals – including Oenok’s 200,000 barrel per day Bakken pipeline. When analysts talk about the upsurge of rail transport in the United States and southern Canada, this is what they’re referring to – an enormous expansion of light crude from the Bakken.

However, a similar expansion has not occurred in Alberta’s tar sands despite the need for additional transportation infrastructure. Data from the Energy Information Administration show that no more than 21,000 bpd of Canadian tar sands and conventional heavy crude – or less than 1% of production – entered the United States via rail on its way to refinery markets in the Gulf Coast by rail in December 2012.

The answer does not seem to be pricing discounts. From 2009 to 2012, producers of tar sands faced the same price discounts that Bakken producers did, if not greater ones. There are two major reasons why tar sands producers haven’t turned to rail to move their product to market. First, it is significantly more expensive for them to do so, and second, they have significantly tighter profit margins than Bakken producers.

Tar sands diluted bitumen is significantly more expensive to move by rail than Bakken light crude. There are a number of reasons for this:

  • The tar sands are about 1,000 miles farther away from refinery markets than the Bakken oil fields.
  • Trains moving light crude can carry nearly 30% more crude than trains moving heavy tar sands diluted bitumen.
  • Moving tar sands requires specialized rail offloading terminals, onloading terminals and heated rail cars.

All of these factors increase the cost of moving a barrel of tar sands to Gulf Coast refineries. Shipping a barrel of tar sands diluted bitumen to the Gulf is currently costing tar sands producers $31 a barrel. Moving it by pipeline only costs $8 to $9.50 a barrel, according to the State Department’s most recent draft Supplemental Environmental Impact Statement.

It’s important to note, this isn’t the first time that State predicted that tar sands by rail was on the verge of rapid expansion - in 2011 the agency made the same claim in its environmental review of Keystone XL.  State’s forecast proved inaccurate then and its 2013 forecast on the viability of rail continues to be substantively flawed. It’s telling that the State Department, and not industry, is the only party seriously interested in substantially expanding rail infrastructure designed for high volumes of Canadian tar sands. Rail simply does not provide an economically feasible alternative for the Keystone XL tar sands pipeline.

The substantial risks of the Keystone XL tar sands pipeline outweigh its marginal benefits.  Keystone XL would enable a substantial expansion of tar sands expansion and substantial climate pollution associated with it. The pipeline would endanger critical jobs on ranches and farms in the Great Plains states in order to transport tar sands to the Gulf Coast where it can be refined and exported. In exchange for 35 permanent jobs, Keystone XL would pose a permanent risk to American communities, sensitive water resources, agricultural industry and climate.

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Comments

Michael BerndtsonApr 9 2013 03:03 PM

I'm confused. Do you want or don't want the KXL to be built? The gist of your post is that the pipeline is cheaper than rail - with the obligatory mention of potential environmental impact at the end.

I read a cost analysis yesterday produced in about 2011 by the Canadian equivalent of our API or DOE. An estimated $2 trillion will be invested in Alberta tar sands between 2010 and 2035. This includes capital, O&M and cost of capital. The anticipated revenue is obviously greater than that. With all the sunk and future capital involved, is there any hope to believe the KXL is not getting built? Time to move from mitigation to adaptation.

Liz CullingtonApr 10 2013 11:29 AM

Very interesting, especially since I have been reading "Section 2.2. Alternatives" of State's SEIS with a very long discussion of the possibility of shipping an equal amount of bitumen via rail instead of pipeline.

Much comment etc has focused on this question: whether the pipeline allows massive tar sands expansion that wouldn't occur otherwise, with much said about the SEIS' apparent conclusion that it makes no difference.

However, I don't see as much mention of the fact that the detailed discussion of the possibility of rail moving an equal quantity of bitumen to Gulf refineries, is to me an incredibly potent argument for why KXL is not needed and is not in the national interest.

A pipeline locks us into not just tar sands expansion (and all that means) but a very single focus distribution system compared to rail. That doesn't seem in the national interest to me.

The focus of the SEIS is a narrow one and I believe needs to be somewhat fought on its own terms, not because that's the way I see it, but because that's the battlefield that's open. (However, that's not to ignore the much more important and larger battlefield of Congress and public opinion, and media coverage.)

The SEIS ignores the impacts of tar sands extraction up in Canada at expanded scale, and the climate impacts of global use of dirtier and more carbon intensive fuel, by virtue of its finding that the same quantity of tar sands would get to market either way.

I agree with Anthony Swift and others that this is not likely, but the detailed justification provided in the SEIS of how that alternative shipment could happen, by rail, strikes me as the most effective argument against the pipeline. It's simply not needed

What's more, I've been looking at the gallons "spilled" per incident, and even two recent large derailments (one of 14 rail cars, one of 22) were "small" compared to recent pipeline ruptures.

A recent rail accident that derailed 14 cars spilled 15,000 gallons of bitumen.
http://www.reuters.com/article/2013/03/28/us-usa-derailment-oilspill-idUSBRE92R02V20130328

An even more recent derailment of 22 railcars on the Canadian Pacific Railroad spilled 16,643 gallons (63,000 liters).
http://www.cbc.ca/news/canada/sudbury/story/2013/04/04/tby-train-derail-oil-spill-white-river-update.html

Compare this to pipeline ruptures in the last few years, and historically a large one every two months, 42,000 to 840,000 gallons. Examples

Alberta, Rainbow 2006 343,000 gallons
Arkansas, Lakehead 2010 800,000 t 1,000,000 gallons
Montana, Silvertip 2011 63,000 gallons
Arkansas, Pegasus 2013 147,000 to 210,000

And my understanding is that these are all LOWER CAPACITY pipelines to proposed Keystone XL.

The pipeline is therefore the more environmentally damaging alternative (not to mention that the rail lines are already there and don't require new construction and the eminent domain taking of people's land for a non-public use.

Remember, TransCanada is a (foreign) pipeline company, not a tar sands bitumen producer, nor an oil refiner, nor a railroad company.

Scott RoseenApr 10 2013 11:43 AM

35 Jobs seem like small drop in a bucket but it wont to those 35 that get employed. Not to mention the construction jobs that it would create would be huge.


I am a avid Hunter and fisherman and would much rather hunt or fish next to a pipe line then a railroad. Not to mention how many people die as a reswult of trains a year. \
The pipe line is a much safer way to transport oil by far!!
Petroleum based products are used by everyone including the most extreme activists.
Would rather buy oil from allies than fund
terrorists for the same products.

Lets Rebuild Our Economy!!!!!!

Will WilliamsApr 12 2013 07:44 AM

Just finished watching your delivery on the panel before the hOuse Energy & Power Committee and you were handsdown the better speaker, though Dr Paccar was a near tie as his info was most enlightening as well.

Too bad the pubs on the committee had to spend the greater part of their time on camera grandstanding for the Fossil Fuel industry and their consitutents at home instead of going deeper into the important issues at hand, such as how XL will only encourage futher use of fossil fuels for the next four decades instead of reducing Carbon levels contributing to it.

If there is a way for me to get in touch with you, I also have some vitally important information about a new clean energy storage breakthrough to enhance wind and solar energy capture technologies...the inventor is a close friend of mine and he is trying to find trustworthy legal representation as well as suitable investros to bring the technology to market by Q1, 2014...

Please let me know on this blog if there is a way to get an email to you for further information and discussion...

Bo

Howard BlazApr 17 2013 12:06 PM

As of 4/17, no word about repair on Pegasus. Is there an alternative pipeline available for tar sands bitumen to the Gulf area underutiliz refineries?

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