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From an article in yesterday’s Globe and Mail:
The long-delayed Keystone XL pipeline has been tangled up in environmentalist opposition and political wrangling. Now some energy experts say the oil market is moving on without it.
A combination of growing oil-by-rail capacity and other new pipelines is increasingly providing alternatives to Keystone XL, just as Ottawa redoubles efforts to persuade U.S. President Barack Obama to green-light the project.
As Washington’s approval process for the contentious TransCanada Corp. project plods into its sixth year, several other options are emerging for Canadian energy companies to get their crude to Gulf Coast refineries and elsewhere, said Phil Skolnick, a New York-based analyst at Canaccord Genuity.
“The oil will find a way down, and if Keystone gets delayed, at the minimum you still don’t have a pinch point because this rail capacity should be built by that time anyway,” Mr. Skolnick said. Energy investors, nervous about Canadian oil producers’ access to markets, should be encouraged, he said.
“The main message is that Keystone XL, and the fear of rejection, has been the overhang on these Canadian energy stocks. Because of all the rail advances that are coming on, that should no longer be a fear,” he said.
What is not clear is the appetite among Americans for exponential growth in shipments of crude by rail (see chart above), especially after the disaster in July in Lac-Mégantic, Que. There, an unmanned oil train careened down an incline and exploded, killing 47 people and wiping out many buildings downtown.
Still, a North American backlog of new tanker cars should start being delivered in 2014, and loading terminal capacity is expanding quickly, showing that oil-by-rail is more than a stop-gap measure for an industry waiting for pipeline aprrovals, Mr. Skolnick said.
Other pipelines will combine with rail to boost excess export capacity by 800,000 barrels a day into 2018 even without Keystone XL, Mr. Skolnick said. They include the southern leg of Keystone between Oklahoma and Texas, which has its approvals and is expected to start up later this year, and Enbridge Inc.’s Flanagan South line, also aimed at increasing access the U.S. Gulf, by mid-2014.
Bottom Line: What’s clear is that the oil companies that are increasing their production crude oil in both US and Canada will find ways to transport their crude oil to refineries, even if Obama blocks the final segment of the Keystone pipeline. For now, much of the increased oil production is being shipped by rail, and the chart above shows that the combined rail shipments of oil in Canada and the US have doubled since 2010. And it’s also clear that blocking the final segment of the Keystone pipeline really won’t have much of an environmental payoff because the oil will still be shipped, just by another means of transportation – mostly rail. The real tradeoff is to move US and Canadian oil by the Keystone XL pipeline at half the cost of shipping by rail, and in a more environmentally friendly way with less risk of an oil spill or disaster like the recent explosion in Quebec, or continue to increase rail shipments of oil at a much higher cost for shipping and with greater risks and impact on the environment. Politics aside, the Keystone XL should be a no-brainer.
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