Of all the nuggets buried in the U.S. State Department’s massive final environmental impact report on Keystone XL one of the most telling was that the cost of moving heavy crude from Alberta to the Gulf Coast would be similar, whether the mode of transportation was pipeline or rail.
The analysis also concluded that the prevailing economics make it likely that the use of rail would allow Canadian crude to displace Mexican Maya crude in the Gulf if XL was rejected by the Obama administration.
The State Department’s bottom line is that even if XL and other cross-border pipelines are turned down, the development of Alberta’s oil sands would not be significantly impacted and the output would find a way to market.
That reinforces the disclosure two months ago by TransCanada Chief Executive Officer Russ Girling that his company is holding discussions with railroads and oil producers to use rail links from Alberta, to the Cushing, Okla., hub, where the crude would be fed into the new Gulf Coast pipeline to Texas refineries.
“There is a point in time (with XL) at which we would consider a rail option,” he said. “If we need a bridge with rail, we will bridge.”
Less diluent by rail
The State Department report delved at some detail into the comparative pipeline vs. rail costs.
In order to achieve breakeven costs, it said the costs of production, transport and the blend of 70 percent oil sands bitumen and 30 percent diluents that is needed to ship the Alberta heavy crude by pipeline would require the benchmark Maya heavy crude price to average $76.78-$79.40 per barrel under long-term committed contracts and $83.76-$86.38 without a contract.
But the report noted that rail tankers can move the oil sands production with a blend of 85 percent bitumen and 15 percent diluents at a lower cost than by pipeline.
It said that to achieve a breakeven point, “railbit” would require a Maya price of $83.03-$90.89, while raw bitumen would require a Maya price of $77.77-$85.82.
The statement said that the “transport penalty for shipping oil sands crude to the Gulf Coast resulting from pipeline constraints” could range from nothing to $8 per barrel.
Although raw bitumen must be mixed with diluents, such as naphtha or condensate, to facilitate shipment by pipeline, rail, despite its higher basic transportation costs, can carry bitumen in its undiluted form or with a lower diluent content.
Seven rail crossings
The State Department determined that 90,000-100,000 barrels per day of heavy Canadian crude was carried by rail into the U.S. during the second quarter of 2013, using seven rail crossings along the Washington and Montana borders, with an average 32 trains per day entering the U.S.
The report said unit trains carrying crude alone cost $3-$4 per barrel less than crude being moved on manifest trains which include a mix of cargoes.
It said four unit train facilities were operational in Western Canada by the end of 2013 and another three are scheduled for completion this year, prompting the department to forecast that rail will likely be able to handle incremental oil sands production in the absence of XL and other pipelines.
“Crude by rail would have to increase by an average 210,000 bpd per year beginning in 2016,” the report said.
“From a logistics standpoint, the ability to construct the necessary crude-by-rail loading and offloading facilities at a rate that could support (Alberta oil sands) production growth in the long term does not appear to be a substantial impediment.”
The State Department’s supplemental environmental impact statement can be downloaded at http://1.usa.gov/1nszGrh.
