Carpe Diem

As Keystone battle drags on, the oil market is moving on without it by adding rail capacity and other new pipelines at an increased cost, and greater risk and environmental impact

uscanrailFrom 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.

21 thoughts on “As Keystone battle drags on, the oil market is moving on without it by adding rail capacity and other new pipelines at an increased cost, and greater risk and environmental impact

  1. one of the most important things is that regardless of what happens to Trans Canada – other companies already have the ability on their existing routes to add capacity -and they would – if they thought that capacity would actually be used but they are unwilling to invest the capital if Trans Canada get approval for a new corridor.

    Despite all the disingenuous blather – indeed propaganda, this is primarily a rent-seeking/crony-capitalism exercise on the part of trans-Canada to NOT USE existing pipelines routes and to pursue their own business interests that depend on the use of Eminent Domain – the govt sanctioning of taking property from others – not for the public interest – but for their own private interests.

    All of this have been dishonestly portrayed as a poor old company trying to provide America with jobs and energy and the libertarian think tanks and libertarian-leaning ane right-wing pundits have willingly participated in the ruse.

    • The route was picked to pick up North Dakota oil, otherwise they could have used the existing route south from the Winnipeg area. Then to Steele City Nebraska, to Cushing Ok and then to the gulf. So basically they had all this trouble because they wanted to get Western North Dakota oil, while the existing routes go thru the eastern part of the state. If it were truly about Canadian oil only the existing route would have worked, but they wanted the Baaken supply as well.

      So its an exercise for Trans Canada to get access to Baaken Crude.

      Note that the Lac Megatic disaster involved a railroad that was in a terrible state of repair, with a 10 mph speed limit. (the line was in shaky financial shape also). Interestingly the shippers did not use the CN lines which also go to St. John NB, but that would have cost more, but with a more strict set of operating rules.
      A simple rule change could have prevented it, by providing that when you park a hazmat train, the switch ahead should be set to derail the train if it moves. (a 2 mph its a much smaller deal than 30 mph)

    • What if the existing routes are not ideally located. Using existing routes is not going to help get oil and gas out of North Dakota. Your statement is false

      • “ideally located” according to who?

        the owners of the properties who will have them taken?

        who decides what is “ideal” when ED is the mechanism and the purposes are not truly for the public but for private gain?

        According to you Marque – it appears you believe the company gets to decide what is “ideal” for them, right?

        And I’d agree if they were not using ED and took direct financial responsibility for their own enterprise.

        Where are the Libertarian “protectors” of property rights on this – private project?

  2. I have to say, Mark Perry has resolutely avoided the issue of Keystone seizing private property for private gain under goverment auspices…where is our libertsrian leader?

    • The ED seems to be the latest left wing trope to try to kill the project – even though it is more environmentally sound than the current system.

      I would actually be interested in how many ED cases there were for the pipeline. I bet the number of objections was trivial.

      • “The ED seems to be the latest left wing trope to try to kill the project”

        ED is a real concern, but yeah, leftist creeps like Larry and Benji just use it to cover for their boyfriend’s poisonous agenda.

        • marque-

          as paul said, ED is a real concern and frankly, is not a power that a just government ought to ever wield except in extremis. (like needing your land to fend off an invasion)

          to wield this power to grant private land to a private buyer is monstrously outside of any sane rights structure.
          hey, keystone might cost more if they are unable to use coercive force to demand land sales/rights. that’s life.

          if the value of the pipeline is really greater than the current value of the land use, this should pose no difficulty. (and if it’s not, then why should we support it?)

          thus, there is really no case to use ED except one based on nepotism and the use of government force to drive profits for the connected at the expense of others.

          paul is also correct that the left is about as sincere on ED as putin is on collecting the Syrian chem weapons.

          it’s a trope they throw out to try and mask their real goals (like anti progress faux environmentalism and knee jerk opposition to corporations and or fossil fuels use)

          this same left LOVES ED for urban redevelopment, mortgage relief, and public highways.

          they love the seizure of property in general. it’s one of their key platform planks. tax you, pay him welfare. tax you, pay for her healthcare. wealth redistribution is just another form of taking property through coercive force and giving it some someone who is politically favored.

          raising ED here is both a straw man (as they keep trying to claim that using ED for keystone is a libertarian position, which it is not) and a monstrous exercise in hypocrisy as they love to advocate these exact same policies on dozens and dozens of issues as though burying a pipe in someone’s land is an unforgivable breach of property rights (and it is if done against their will) but that taking 25% of your annual income to give it to other people in the form of benefits, subsidies, healthcare, pensions etc is somehow any different.

          like many tactical arguments, leftist opposition to keystone on the grounds of ED is deeply hypocritical and utterly inconsistent and while it might be true that one could level accusations of similar inconsistency upon those on the right who seek to use ED to pursue keystone, this endless blather about it being a libertarian position is baseless and false.

          i do not know any libertarians that support the use of ED for private purposes. it’s a pure straw man.

          however, just because the left is utterly insincere and inconsistent to the point of being dishonest with such arguments is not a defense of ED. it’s still an awful policy, anathema to the notion of rights, and unnecessary if the projects planned are a more valuable use of land. in such a case, you can just pay.

          if one guy wants to be a pain in the ass and try to stick you up, go around him. moving the keystone a couple miles is no big deal. make it clear you will not play that game, and people will stop trying it especially once they have angry neighbors who just lost out on a sale of land rights because the line moved.

          • Morganovich,

            if one guy wants to be a pain in the ass and try to stick you up, go around him. moving the keystone a couple miles is no big deal. make it clear you will not play that game, and people will stop trying it especially once they have angry neighbors who just lost out on a sale of land rights because the line moved.

            Your comments in this vein for the last couple posts(especially on the interstate highway system) on ED have been superb. Thanks.

        • blathering about libertarian even right wing principles then advocating a private company take land from others – is pretty blatant hypocrisy.

          At least Morg has enough principles to stick to them.

          Give credit to CATO also for previously asking for natural resource ED was ignored by libertarian types but I do not believe that I’ve seen CATO weigh in on Keystone.

          The truth is that virtually all of our commerce infrastructure – probably the most robust in the world, was obtained through ED but now taken for granted for those who advocate for property rights and liberty.

          I see no movement to turn over the commerce infrastructure back to the original owners and let them decide how much to charge for use.

    • “I have to say, Mark Perry has resolutely avoided the issue of Keystone seizing private property for private gain under goverment auspices..”

      So has your boyfriend. Not once has his administration voiced ED as a rationals for continuous delays. Killing off fossil fuels is what motivates him. The seizing or altering private property doesn’t concern the community-organizer-in-chief in the least.

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