“Rail can get you just about anywhere. It's like the Harry Potter stairway. You get on the stairs at one end and they move to wherever you need to go. That's the beauty of the railway. You get on at one end here, with your bitumen or dilbit, and then you can end up in different places depending on what are the best markets.”
That quote is from Pete Sametz, president of Connacher Oil and Gas, speaking to the Daily Oil Bulletin about the appeal of moving tar sands oil by rail. And Sametz isn’t alone in his enthusiasm for rail transportation options for bitumen.
At the Canadian Institute's North American Pipeline Symposium in June, Randy Meyer of Canadian National railway, told the conference how this situation appeared to him.
“It's kind of amusing when I read in the paper that there's this angst and gnashing of teeth about Keystone and I'm going, 'My goodness, we're already there.' We can go there and we are. We are shipping product there.”
The reality is that tar sands bitumen transport is so well-suited for rail over pipelines that it is now cheaper to move tar sands bitumen by rail than it is by pipeline. If you're a tar sands industry executive, this is your light-bulb moment: Who needs the Keystone XL headache when you can bypass the controversy entirely using existing rail lines?
Aside from the magical Harry Potter flexibility of rail compared to pipelines, rail also offers the option of moving bitumen without having to dilute it, as is required for pipelines, which makes it cheaper as explained by Randy Meyer.
“We did a study where we took the American Association of Railway's published rates, which averaged out all the traffic that moves and all its products. That average … is about 16 per cent less than pipeline costs.”
This reality and the recent revelations that the impact of the tar sands oil will be much greater than initially predicted, present a grim picture for the environment, although apparently an amusing and exciting one for oil and rail executives. Companies like Grizzly Oil Sands outline their plans on their website.
Grizzly is excited at the range of benefits to be generated from its oil-by-rail bitumen marketing strategy. The Company believes its approach can achieve economics superior to using the Keystone XL pipeline, if built.
On their site Grizzly mentions purchasing new rail cars to move bitumen as well as completing a rail-to-barge facility on the Mississippi in Louisiana.
And despite predictions in the new proposed oil-by-rail regulations that the DOT-111 cars that will eventually not be allowed to carry the much more volatile Bakken crude oil would instead be repurposed to carry tar sands oil, this is unlikely. The most profitable way to move bitumen by rail is in thermally-jacketed cars that allow for the oil to be heated.
The current DOT-111 cars don’t have this capacity and retrofitting them would be too costly.
Heating the bitumen versus diluting it is where the industry sees the cost advantages.
And while the new proposed regulations for moving volatile crude oil and ethanol mention that tar sands oil may be transported in DOT-111s in the future, the proposed changes do not apply to tar sands oil in any way.
When the DOT first announced new testing requirements for crude oil being shipped by rail in February of this year, there was immediate push back from the industry because of the impact it may have on moving tar sands by rail. The government quickly clarified that tar sands oil would be exempt from the requirements, a move that at the time was described by the president of the American Fuel & Petrochemical Manufacturers as a “judicious response.”
The cost advantages and flexibility of moving heated bitumen by rail and are spurring significant new investment in the oil-by-rail industry. As reported by Oil Change International in their report Runaway Train, the planned expansion is massive and would increase the current oil-by-rail capacity of one million barrels of oil per day to five times that amount. While much of this is also for lighter crudes like Bakken, it also is being driven by the desire to move tar sands oil by rail.
As previously noted on DeSmogBlog, the additional reason that rail is appealing to tar sands producers is that they ultimately want to sell their product overseas. And while there is an export ban on oil produced in the U.S., this does not apply to the tar sands oil from Canada. And the trains currently give access to the East, West and Gulf coasts where the oil can be loaded onto ocean going vessels and sent to the highest bidder on the world market.
Global Partners is currently one of the top capacity oil-by-rail companies with a terminal on the East coast in Albany, NY, on the West coast in Oregon and with plans to build a new facility in Texas and another in New Windsor, NY. And despite their current business of moving Bakken crude, they are actively promoting tar sands by rail to the industry.
Global Partners CEO Eric Slifka recently made the sales pitch for tars sands by rail at an industry conference saying, “we can take pure heavy crude oil, put it in a heated rail car … and move it directly.”
Global’s recent expansion plans in Texas resulted in the following headline in the Houston Business Journal: Keystone? Who needs it? Railroad plans fuel terminal for Port Arthur.
If the current economics of moving tar sands oil by rail can be proven to be scalable, and it would appear they can, rail appears to be faster, cheaper and more flexible as an option to get Canadian tar sands oil onto the international market. Which means the producers can get higher prices, which in turn makes the expanded extraction and consumption of the tar sands that much more likely.
Image credit: Garth Lenz