Rail will temporarily fill Keystone XL vacuum

New pipeline infrastructure will eventually pick up the slack for Canadian oil producers.

By Daniel J. Graeber

LOUISVILLE, Ky., Nov. 25 (UPI) -- The rejection of the Keystone XL pipeline will put more oil on North American rails, but new pipelines will in time come to take up the slack, a report finds.

In its record of decision on the Keystone XL pipeline, the U.S. State Department, charged with vetting the project, said there were questions about the necessity for additional North American pipeline capacity given uncertainties about the future growth of Canadian oil sands production.


Analysis from industry group Genscape said crude oil production from Alberta, home to most of the Canadian oil fields, could increase 14 percent from this year's level by the end of 2016.

Genscape said the Nov. 6 decision to deny TransCanada's permit to the Keystone XL may be "a tailwind for the struggling [rail] industry for at least for a few years until new pipelines come online."

The increase in crude oil production in North America had been more than the existing network of pipelines can handle, which left many in the industry to turn to rail as an alternate transit method in the peak era of shale. A mid-November report from Genscape, however, said leasing rates for rail car model CPC-1232, designated for crude oil transport, dropped from $2,000 per month in early 2014 to $475 month because of lower crude oil prices and a general weakening in the energy sector.


Keystone XL was designed to carry 830,000 barrels of oil per day from Canada to Nebraska. From there, it would eventually send oil through the so-called Gulf Coast Project, which TransCanada put into service in 2014, and on to refineries along the southern U.S. coast.

Rail's role as a transit alternative will be temporary. Additional capacity added to existing oil pipeline networks, and new arteries planned for eastern and western Canadian markets, means new pipeline sources "will eventually be able to fulfill any production growth in Canada," Genscape said.

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