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Vol. 19, No. 22 Week of June 01, 2014
Providing coverage of Bakken oil and gas

XL switching tracks

Keystone indecision forces TransCanada to advance crude-by-rail option

Gary Park

For Petroleum News Bakken

Unwilling to put up with more indecision by the Obama administration on Keystone XL, TransCanada Chief Executive Officer Russ Girling is putting an end to talk that he is bluffing by laying out his strategy to move oil sands crude by rail from Alberta to the Texas Gulf Coast.

“Our customers asked whether we would explore with them potentially building railcar loading facilities (at the Hardisty, Alberta, pipeline hub), which is the initiation point of the current Keystone pipeline and we’ve said we will do that and we’ll do it expeditiously,” Girling told reporters in Washington, D.C., where he met with U.S. lawmakers, business leaders and media outlets.

He said TransCanada’s storage facilities in Hardisty and Cushing, Oklahoma, could be increased with new storage space in Steele City, Nebraska, plus loading and unloading rail terminals, opening the way for crude to be pumped into XL’s already-operating southern leg from Cushing to Gulf Coast refineries.

A spokesman for TransCanada confirmed the company is examining modifications to its current shipping contracts to allow for rail shipments that do not require a Presidential Permit to cross the Canada-U.S. border.

The technical and financial details of increased rail use are expected to be worked out within the next few weeks.

Girling said TransCanada has been pondering a rail option for some time, but was forced to act when the Obama administration indicated a final decision on XL could be pushed into 2015 after the mid-term congressional elections and a court ruling on whether TransCanada has a legal right of way through Nebraska.

But it’s still plan B

The shift to rail is rapidly taking place, with major oil sands producers such as Suncor Energy and Cenovus Energy using that option to access U.S. markets and scoffing at environmentalists who argue rail is too costly to displace pipelines.

Girling agreed that TransCanada will not make the same profits from rail as a pipeline, with most of the revenue going to shippers, but rail would help pick up the slack and retain faith with the company’s clients.

Some of TransCanada’s customers have shipping arrangements in place with railroads, but others don’t.

He told the Globe and Mail in May that the industry’s choices “aren’t ‘leave the oil in the ground and move to alternative energy,’ the choices really are ‘rail or pipeline.’ Pipeline, by far, is the best alternative.”

But TransCanada has repeatedly aired its frustration with a five-year wait for Obama to make his final decision on XL, which would carry up to 830,000 barrels per day of crude bitumen from Alberta and light crude from the Bakken in North Dakota, to Cushing.

The GHG factor

Gary Doer, Canada’s ambassador to the United States, told a petroleum industry dinner in Calgary May 21 that Canadian oil accounts for 33 percent of U.S. imports compared with 19 percent in 2009, with most of the increase being moved by rail or truck.

He said those two options increase greenhouse gas emissions by 28 to 42 percent and add about US$10 per barrel to transportation costs.

“If you say ‘no’ to the pipeline you are saying ‘yes’ to higher GHGs,” Doer said. “What we are dealing with is an exercise in hyperbole, not an exercise in facts. That position has fallen like a house of cards and someone has to have the backbone to say that.”

He said the Canadian government has signaled to Washington that it is prepared to negotiate common regulations and standards on GHG emissions on both sides of the border, but that offer has met with silence.

Doer said he has grown tired of the failure in the U.S. to accept that approval of Keystone XL is the best way to displace crude imported from Venezuela, whose own environmental record he argued should be examined by the environmental nongovernment organizations.

He also noted that 63 percent of Canada’s electricity originates from renewable sources compared with 13 percent in the United States, while emissions from three U.S. power plants can exceed those from the oil sands.

CN’s take on safety

On the rail front, Claude Mongeau, chief executive officer of Canadian National Railway, told an audience in Edmonton May 22 that his company has made “remarkable” progress in its safety record over the past 10 years.

He said main track accidents are down 50 percent, “despite a significant growth in volume,” while 99.999 percent of dangerous goods reach their destination intact.

Mongeau said CN Rail spends C$1 billion a year to maintain network safety and integrity and is working on a strategy to further improve that record, including the phasing out of 140 old-style DOT-111 tank cars within three years, while cars will be strengthened to reduce the risk of ruptures.

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Keystone XL stalling hits Canada-U.S. trade

Stalling by the United States government on resolving the fate of Keystone XL is endangering a much wider cross-border trade, said TransCanada Chief Executive Officer Russ Girling.

The delay in getting a decision on XL is “calling into question what the future looks like for that trading relationship,” he told a business conference in Toronto, adding his voice to a growing concern within Canadian government and business circles.

Girling, launching a full-scale North America-wide offensive to end the XL procrastination, said the unease is promoting Canadian exporters to shift their focus from the U.S. to other countries “to ensure we can continue to develop our resources on our terms and our schedule, not those dictated by our neighbors to the south.”

Reiterating his familiar refrain, he said TransCanada has waited for more than 2,000 days since filing its XL application in the United States for a final verdict, about triple the usual time needed to complete a regulatory process.

NAFTA option

Girling said he is frustrated that there is still no “clear direction” on when the U.S. State Department and President Barack Obama will deliver their verdict.

However, he saw no point at this stage in threatening legal action under the North American Free Trade Agreement, noting that although TransCanada has explored all legal avenues, the NAFTA option “isn’t our primary tack for moving this project forward.”

But that does not rule out turning to NAFTA, which provides for “fair and equal treatment” on trade issues and at this point TransCanada does not feel it is “getting fair and equal treatment,” he said.

Girling said the procrastinating on XL goes to the “very core” of NAFTA’s objective to move energy across the border and ensure energy security.

“So when you throw into this an uncertainty around whether or not the United States wants our oil any more, or in what form, and how they want to transport it, it affects the relationship,” he said.

Misinformation campaign

What the XL dispute has done is serve as a “wake-up” call for those in Canada who had taken a complacent view of the once-assured access for Canadian oil and natural gas to the United States and are now confronted with deciding whether that is any longer the case, Girling said.

He said the opposition to XL comes from people whose determination to leave natural resources in the ground is based on a campaign of misinformation about the potential dangers to the environment of pipeline accidents.

“It is a pipeline for God’s sake. It is the safest way to move oil to market,” he said. “Do you want to move that product by pipeline, or do you want to move it by rail? For large quantities over long distances, there is no question that the most responsible thing to do is build a pipeline.”

Girling said that if Obama casts his vote before the end of 2014, XL would require two full summers of construction, allowing the first crude to start moving no sooner than the end of 2016.

—Gary Park