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SHOCKER: Reuters Debunks State Dept. Claim Of Major U.S. Tar Sands Imports By Rail If Keystone Pipeline Scrapped

By Daniel J. Weiss, Guest Contributor  

"SHOCKER: Reuters Debunks State Dept. Claim Of Major U.S. Tar Sands Imports By Rail If Keystone Pipeline Scrapped"

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The State Department’s Supplemental Environmental Impact Statement (SEIS) of the proposed Keystone XL pipeline permit, released on March 1, concludes that dirty tar sands oil will move to U.S. Gulf Coast refineries by rail if the pipeline is disapproved. Therefore, the State Department asserts, there will be no difference in the amount of carbon pollution emitted from the increased production of tar sands oil regardless of Keystone approval.

An in-depth analysis of this claim by Reuters reporter Patrick Rucker debunks it. Reuters determined that “Oil-by-train may not be a substitute for Keystone pipeline.” If only small amounts of the dirty tar sands oil can move to the Gulf Coast by rail, then approval of Keystone would indeed facilitate a huge increase in tar sands oil production and carbon pollution.

The Canadian government and big oil companies claim that there will be a huge expansion in tar sands oil regardless of whether Keystone is built, so its approval will not lead to an increase in carbon pollution. The SEIS declares on page ES-15:

Based on information and analysis about the North American crude transport infrastructure (particularly the proven ability of rail to transport substantial quantities of crude oil profitably under current market conditions, and to add capacity relatively rapidly) and the global crude oil market, the draft Supplemental EIS concludes that approval or denial of the proposed Project is unlikely to have a substantial impact on the rate of development in the oil sands, or on the amount of heavy crude oil refined in the Gulf Coast area.

Reuters investigated this assumption, and found it uninformed and unlikely:


Some industry officials, energy analysts and recent data raise questions about whether the industry is really eager to adopt crude-by-rail should the U.S. government rule against the TransCanada Corp pipeline.

They say train transport is so expensive that Canadian heavy crude, produced by processing bituminous sand, isn’t likely to reach Texas and Louisiana in Keystone-like quantities by rail.

The State Department report cites two industry studies to predict that 200,000 barrels a day or more of Canadian heavy crude oil will reach Gulf Coast refiners by train by the end of this year.

Officials used that figure to bolster their argument that the oil industry has already decided rail is a good option for moving oil sands crude. “Limitations on pipeline transport would force more crude oil to be transported via other modes of transportation, such as rail, which would probably (but not certainly) be more expensive,” the State Department said.

But one of the sources for the 200,000 barrels per day estimate, Calgary investment bank Peters & Co, says its forecast was misunderstood as being for just Gulf Coast-bound oil when it included shipments to Eastern Canada and other refiners.

“We haven’t tracked exactly where those barrels are going,” said Tyler Reardon, a spokesman for Peters & Co.

And there’s more:

The other source for the number, Hart Energy, did predict in a report last year that 250,000 barrels per day of heavy crude from Western Canada would be reaching the Gulf Coast before the end of this year but its analysts are reviewing that forecast.

“Hart Energy continues to carefully monitor flows from Western Canada,” said Susan Emfinger, a spokeswoman for the Houston energy consultant.

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.

In fact, EIA data shows that little heavy crude from Canada is reaching the Gulf Coast via any route, with about 75 percent of 33 million barrels of heavy Canadian crude being processed in the Midwest in January and only 7 percent of it being processed further south. Other destinations account for the remainder.

In other words, rail is an unlikely to move much tar sands oil to Gulf Coast refineries to replace the 830,000 barrels per day to be transported by Keystone.

Interestingly, the State Department’s finding that tar sands oil will be produced in the large amounts and exported to the United States regardless of Keystone’s construction is at odds with estimates by the Canadian Association of Petroleum Producers CAPP) — Canada’s version of the American Petroleum Institute. Last year CAPP’s “Crude Oil Forecast, Markets, & Pipelines” estimated that tar sands oil production will double between 2020 and 2030, unless Keystone XL and other proposed pipelines are not built.

In this forecast, oil sands production rises from 1.6 million b/d [barrels per day] in 2011 to almost double at 3.1 million b/d by 2020 and 4.2 million b/d by 2025 and 5.0 million b/d by the end of the forecast period in 2030. If the only projects to proceed were the ones in operation or currently under construction, oil sands production would still increase by 54 per cent to 2.5 million b/d by 2020 and then remain relatively flat for the rest of the forecast.

The Toronto Globe and Mail recently assessed the prospects for Keystone and these other proposed pipelines. It found that “Oil companies, seeking new markets, are pursuing a number of pipeline projects, with many meeting resistance from environmentalists or being mired in red tape.” The Globe and Mail concluded that Keystone and other pipeline proposals may be a “pipe dream.”

The bottom line: Contrary to the State Department’s fatally flawed analysis, the Keystone XL pipeline is essential to an increase in the production of dirty tar sands oil. Its approval would lead to an increase in carbon pollution equivalent to 51 coal fired power plants. Meanwhile, it would create only 35 permanent jobs to bring this highly polluting oil to the U.S. so that it can be refined and exported to other nations.

Keystone XL is all risk and no reward.

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15 Responses to SHOCKER: Reuters Debunks State Dept. Claim Of Major U.S. Tar Sands Imports By Rail If Keystone Pipeline Scrapped

  1. This debunks the most critical assumption of the State Department’s Keystone analysis. If rail isn’t a real substitute for the pipeline, then stopping the pipeline would have a material impact on the cost and rate of exploitation of the tar sands resource, and the argument for not approving the pipeline is much stronger. Has anyone delved into the details of the Reuters work? I’m eager to learn more.

  2. Joan Savage says:

    The petroleum industry seems to be hedging, as there’s a big backlog of orders for company-owned tank cars. It’s not clear if those cars on order are designed to handle dilbit, or if we are seeing a trend towards using rail for post-refinery transport, or both, or neither.

    Article on tank car back orders:
    http://wire.kapitall.com/investment-idea/tank-car-manufacturers-to-benefit-from-crude-by-rail/

  3. rollin says:

    Railroads could carry more to the Gulf as well as to ports in Canada, tar sands production will rise no matter what.

    • addicted says:

      Shorter rollin:”I am commenting on an article which goes through great lengths to come to a conclusion, that the conclusion is wrong, with no justification at all, so I can think myself smart”.

    • Mimikatz says:

      Just like coal will expand forever?

      When the damage becomes apparent, as with coal burning in China, things will change. When we can no longer support the infrastructure underpinning our economic system, we will really see change.

      Don’t bet your future on 97% of climate scientists being wrong.

  4. M Tucker says:

    The sad truth is you can’t keep an oil company from moving oil when they smell a profit. You need to keep track of the pipeline companies and the existing oil terminals. You need to watch for expansion of oil terminals to allow greater export capacity. Enbridge is planning to move oil east in existing pipelines. That would take just a bit of engineering to allow a reversed flow in the existing lines. Then we have all heard about the Northern Gateway Pipeline to the Canadian west coast. It has a lot of opposition in BC and it looks like it may not get built but…But ask yourself, Does BC already have export terminals? Do pipelines already exist to bring oil, even the so call Alberta Heave Crude aka tar sand oil, to the west coast?

    Have you heard of Kinder Morgan? Yeah, another pipeline company. Have you heard of the Trans Mountain Pipeline System? The only good news is the capacity is not as great as what Keystone or Northern Gateway would allow BUT IT ALREADY EXISTS. Could trains move oil from Alberta west to existing terminal in BC? Yeah, they could and they will as long as it is profitable. The existing BC terminals do not have the mammoth capacity of the entire Gulf Coast terminals but if Alberta wants to move oil Alberta will find a way to move that oil.

    From Kinder Morgan:
    “We have been moving diluted bitumen in the Trans Mountain Pipeline since the late 1980s. Our decades of experience transporting this product has shown us that diluted bitumen is no more corrosive than conventional oil products, something that has also been substantiated by independent research.”

    From CBC News:
    “The current 1,150-kilometre pipeline runs from Edmonton to the Westridge Terminal in Burnaby, B.C., and carries 300,000 barrels a day, but Kinder Morgan wants to expand that to 890,000 barrels per day.

    The new pipeline would transport heavier oils and diluted bitumen, a molasses-like hydrocarbon, while the existing pipeline would transport refined products, such as synthetic crude oils [Synthetic crude is the output from a bitumen/extra heavy oil upgrader facility used in connection with oil sand production] and light crude oils.”

    Yeah, Kinder Morgan is already planning to expand the pipeline.

    North America is already crisscrossed by an enormous number of pipelines. Some have been here a long time. Tar sand oil is now part of the commodity that makes modern civilization possible. Sure it isn’t really crude oil but it is still coveted in the same way as all the other crude. Until the world finds a way to get off petroleum and petroleum like resources this sort of constant building and planning and proposing of new oil transport methods will not cease.

    • There is very strong and growing opposition in BC to Northern Gateway and KM Transmountain expansion. Odds are looking for these projects.

      The reality is that climate activists think they can prevent the radical expansion plans of the tar sands industry. So far they are having a great deal of success slowing down the rubber stamp process.

      Remember the oil sands industry plans to triple production in two decades. They will need lots and lots and lots of huge new pipelines to do that. They need Keystone XL AND Northern Gateway AND KM TMX expansion AND Mainline reversal AND rail expansion AND more to pull it off.

      As there freak out on KXL and NGateway shows they know each one is serious and the timing is starting to cut into expansion plans.

      Even more ominous, Suncor recently said it was focusing on dividends and share buybacks. That is what companies do when they aren’t expanding rapidly.

      Most importantly, the tar sands have a “sell by” date that is rapidly approaching. They are the leading edge of the carbon bubble.

      The IEA has shown that world will want less tar oil than Alberta has already approved even on a path to 6C! On a path to 2C, no more tar sands projects need to be started.

      The game these days is a desperate race by fossil fuel deposit owners to “lock in” as many years of extraction at as high a volume as they can. It is like musical chairs…delay loses you a seat.

    • What you say about oil companies moving oil is mostly true, but canceling the pipeline would have the salutary effects of 1) costing the oil companies a lot of money in the capital already expended that would have to be scrapped, 2) making them scramble to figure out alternative shipping means (which costs money, time, and manpower), 3) raising the cost of capital for companies thinking of investing in future expansion of tar sands, because everyone “in the know” expects the pipeline to be approved, and if it weren’t, it would be a nice shock to the market players. Anything legal we can do to increase the expense and delay exploitation of tar sands is worth doing, in my view (and some illegal civil disobedience is probably warranted as well).

  5. Jak Crow says:

    You should always mention, when bringing up the most recent state dept xl report, that it was written by a paid transcanada consultant, because, you know, it was.

  6. The most important climate difference to me between pipeline and rail is that Keystone “locks in” 40 years of climate pollution. Railroads don’t.

    As Hansen said, KXL is not only a bad marriage it is a LONG one.

    It is the “lock in” that the industry is fighting so hard for. They want a 40 year stamp of approval.

  7. Tony says:

    Let the Canadians build this pipeline to their coast and absorb the immediate environmental impact of this case of not moving on to the next reliable power source. It’s going to the Chinese anyways.

  8. Mike says:

    Actually what should happen is KILL the pipeline all together. Build a few refineries in CANADA, then sell fuel to the USA (if they want it) which is safer to transport or even pipeline it, and then sell cheap fuel to Canadians just like Saudia and Venezuela do. If that doesnt open up some eyes..nothing will.

  9. Thomas James Teters says:

    I’ll tell you what you are going to do TransCanada: You are going to start building two Bitumen Refineries, within 10 miles of the existing open pit mines and start CRACKING THAT CRAP IN CANADA AND THEN ship it down to US, refined. Now get started on that RIGHT NOW !!