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Choose pipeline, rail or boat – oil sands aren’t staying buried

The opponents of the Keystone XL pipeline want to frame the debate as a philosophical one between whether we should burn more Canadian oil sands crude, or leave it in the ground. Russ Girling says it's the wrong question – and the evolving reality of oil transport has proven so.

"Your choices aren't 'leave the oil in the ground and move to alternative energy', the choices really are 'rail or pipeline'," the president and CEO of TransCanada Corp., the company that wants to build the controversial project, told The Globe and Mail's editorial board Tuesday. "Pipeline, by far, is the best alternative."

To the opponents, this sounds like an all-too-familiar shrug of passive resignation – the oil is flowing into the U.S. anyway, so why not have it flow in from friendly, reliable Canada, and in a pipeline rather than in thousands of rail cars? Nevertheless, it's a bluntly accurate assessment of the reality that has emerged as Keystone sits indefinitely on the launch pad.

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If all had gone according to plan, and not been thwarted by activism and politics, Keystone would have been up and running for years now. Yet the absence of the pipeline did little to stop oil sands expansion. Production has risen by more than 30 per cent since 2010.

Instead, trains have become the solution – and in exponentially growing numbers. The National Energy Board's latest figures show that nearly 150,000 barrels a day of Canadian oil now enter the United States by rail – nearly 10 times the volume of just two years ago. While major pipeline projects such as Keystone remain stalled, plans for more terminals to move even more oil by rail are moving forward; indeed, TransCanada has some of its own.

But it's neither the company's first choice, nor the best choice – for anyone. As the Lac-Mégantic disaster strongly underlines, the growing shipments of oil on Canadian and U.S. rail lines pose a whole new level of public and environmental risk.

"The increase in rail traffic is irresponsible," Mr. Girling said. "People are going to come to realize that it isn't a very smart thing to do."

Aside from safety issues – and, frankly, probably more to the point for the industry – is the cost. TransCanada is exploring setting up rail terminals to cover the Keystone XL route from Alberta to Nebraska, where the oil could link up with existing pipe to the U.S. Gulf Coast. But the additional transportation cost, Mr. Girling pointed out, would be a substantial $7 to $9 a barrel. TransCanada is looking at a more cost-effective alternative, namely getting the oil to Canada's east coast via its proposed Energy East pipeline and then transporting it from there, by ship, to Gulf Coast customers. That would still add about $2 a barrel, however.

And Mr. Girling made it abundantly clear that the Gulf Coast is where TransCanada is determined to go. Yes, the Energy East project (which could be in service by 2018) would allow it to deliver Alberta oil sands crude to refineries in Quebec and New Brunswick that currently rely on overseas oil imports. And the company might also explore an oil pipeline to the West Coast, destined for exports to energy-hungry Asian markets. But the Gulf Coast, he argued, is where the demand is.

"It's the biggest refining centre on Earth," he said, noting that the appetite for supply is already so big that the company already has commitments from shippers to fill the entire capacity of Keystone XL. "That Gulf Coast market is so big, and requires so many barrels, that getting there will always be a prize," he said.

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About the Author
Economics Reporter

David Parkinson has been covering business and financial markets since 1990, and has been with The Globe and Mail since 2000. A Calgary native, he received a Southam Fellowship from the University of Toronto in 1999-2000, studying international political economics. More

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