Pipeline or Not, Lots of Canadian Crude Oil is Headed to the US

Pipeline or Not, Lots of Canadian Crude Oil is Headed to the US

By Marita Noon

Environmentalists mistakenly think that blocking the Keystone pipeline will prevent crude oil, produced from Canada’s oil sands, from being extracted and from being conveyed into the US to be refined into gasoline, asphalt, and other products that are important to the transportation and manufacturing sectors. Their ultimate goal is to stop all development of the Canadian resource.

The oil spilled, as a result of a train derailment on Tuesday, highlights their misguided efforts.

News flash: Canada is developing their abundant oil sands and the crude oil is already being shipped to the United States—albeit in a more costly and less safe mode.

Early Wednesday morning, 14 cars of a 94-car mixed-freight train, derailed near Parker Prairie, MN. The Canadian Pacific Railroad (CPR) train was carrying oil from Western Canada to Chicago—though CPR does ship to refiners along the Gulf of Mexico, the Northeastern US and Eastern Canada. Of the 14 cars, one ruptured and, according to the Minnesota Pollution Control Agency, the accident spilled as much as 26,000 gallons of crude oil (one car can contain 550 barrels (or about 23,000 gallons) of oil and trains often carry 80-150 cars). Two other cars had some leakage—though due to the frozen ground, “there’s no threat to ground or surface water” and there were no injuries.

The CPR train carrying Canadian oil to the US is part of a growing trend, as producers and refiners have turned to railroads to make up for a lack of pipeline capacity. It is estimated that, as Canadian production rises, “rail shipments of western Canadian crude had leapt about 150% to roughly 150,000 barrels a day in the last eight months.” The Wall Street Journal recently stated: “Pipeline or not, lots of Canadian crude oil is headed to the US.” It reported that, this year, more than 200,000 barrels a day will be shipped to the Gulf Coast refining hub, and called the increased use of railroads “an end run around the much-delayed pipeline”—which would more than quadruple capacity to 830,000 barrels a day. The March 11 article says: “Some oil industry executives and analysts, meanwhile, have raised concerns about rail accidents involving carloads of crude oil.” Despite, a decade-long drop in accident rates, Tuesday’s derailment/spill highlights Keystone’s importance—though a Keystone approval could hurt Obama supporter Warren Buffet’s recent purchase of the Burlington Northern Santa Fe railroad that carries about 25% of the Bakken’s oil and “can ship higher volumes from North Dakota or Alberta in the future.”

The use of rail for Canada’s “stranded” crude oil is not new. Calling it a “pipeline on rails,” in February 2011, the Globe and Mail reported: “Although pipelines continue to carry the overwhelming majority of Canada’s oil production, both Canadian National Railway Co. and Canadian Pacific Railway Ltd. have begun using their rail networks to deliver crude.” Rail does offer several advantages for transporting Canadian crude. As the National Post, in 2009, points out: “Geopolitically, the rail option opens up the world markets for producers but also allows Canadian oil producers to bypass protectionism as well as the fickleness of environmental politics south of the border.” Oil crossing the international border via rail doesn’t require State Department approval.

Pro-pipeline pressure on the Obama administration is mounting. During the weekend’s Senate budget votes, 17 “moderate and conservative Democrats sided with Republicans on the Keystone pipeline.” Addressing the vote, the Wall Street Journal states: “The Senate vote is symbolic since the budget outline lacks the force of law. Still, the vote reflects the growing bipartisan consensus that a private investment creating tens of thousands of jobs trumps the scare tactics of environmentalists.”

Worry over “contamination from spills” is one of the “scare tactics” used by environmentalists to oppose the Keystone pipeline—yet pipelines are universally accepted as safer than transport by rail or truck (trucks bring the crude oil from the drilling site to the rail terminals).

Another “scare tactic” is to debunk the law of supply and demand; the ability of more resource to lower prices at the pump. On my own Facebook page, a “friend” posted the following: “My question, which neither you nor anyone else has answered is: If producing more oil here lowers prices as Marita says it will, why are we exporting it and why are prices so high?” From Bloomberg Businessweek, here’s an explanation. In short, Edward Morse, head of commodities research at Citigroup Global Markets, predicts that due to increased supply “$90 will be the new ceiling for oil prices rather than the floor it’s been in recent years.” The North American supply, he says, will result in a steep drop in oil imports “from OPEC’s biggest West African members” and “those barrels will have to find another home. The surplus African oil could end up competing with Mideast suppliers for customers in India, China, Europe, and Korea. As the global competition heats up, oil prices the world over will probably drop.”

In a few weeks, the State Department will be holding a pipeline hearing, a “listening session,” in Grand Island, NE. News reports state: “The meeting will give the public a chance to weigh in on the environmental impact of the proposed project.” Four State Department reviews have given the pipeline environmental clearance and, most recently, acknowledged that Canada will continue to extract its rich resource as “the oil sands are absolutely essential to maintaining the future living standards of Canadians,” and “pipeline or not, lots of Canadian crude oil is headed to the US”—though now coming via a “pipeline on rails.” As Wednesday’s little spill spotlights, those who really care about the environment support the Keystone pipeline. (Those unable to attend the April 18 hearing, can submit comments by emailing: keystonecomments@state.gov.)

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