Pipelines at Capacity Will Put More Crude Oil on Rail

Impending increases in the volume of synthetic crude oil from Alberta’s tar sands/oil sands have nowhere to go by pipeline, CBC News reports. That means more will find its way to market by the “costlier and more dangerous” method of dedicated tanker trains.

“Oilsands production will surge once Suncor’s Fort Hills facility and Canadian Natural’s Horizon project begin processing bitumen in the coming months,” the outlet states. But existing pipelines to carry that product to markets, especially in the United States Gulf and East coasts, are running at above 90% capacity. Three new pipelines have been approved, but Kinder Morgan’s Trans Mountain Expansion, TransCanada’s semi-revived Keystone XL, and Enbridge’s Line 3 replacement are all mired in combinations of local resistance and related legal challenges.

As a result, Calgary commodities analyst Martin King told CBC, “with the supply growth that is going to be happening late this year [and] next year, there just simply is not enough physical capacity to move those barrels to market on pipelines. So it will have to go to market on rails.”

Although not all crude oils are equally volatile, several unit trains carrying unrefined oil have exploded when they derailed, earning them the derisive term “bomb trains.” Testimony in a Canadian court last month linked the worst such disaster—the 2013 explosion of a unit train in Lac-Mégantic, Quebec, which levelled the community’s downtown and killed 47 people—to a pattern of neglect by the train’s operator.

Safety isn’t the only deterrent to shipping oil by rail. The method also adds $3 to $4 to the delivered cost of a barrel of oil—an expense reflected in the discounted prices paid to Canadian producers that also face some of the world’s highest costs of crude production.

Nonetheless, “we’re starting to see more and more indications of barrels getting on the rails,” King said. “It’s slowly trending in that direction.”