Railroads emerge as alternative to Keystone XL pipeline for moving oil sands from Canada

Peters said that at least two oil sands producers, Suncor and MEG Energy, are adding rail capacity. Canadian National Railway announced on Thursday that it expects to double its crude shipments this year and will expand storage and other facilities in Geismar, La. Two large heavy crude refineries are located there.

“Crude oil by rail is one of CN’s fastest growing businesses,” CN Executive Vice President Jean-Jacques Ruest said in a statement.

Keystone: Down the Line

Steven J. Mufson

SPECIAL REPORT | Three journalists traveled the proposed pipeline route. Learn more about their journey.

The State Department report on the Keystone XL proposal said there are 48,000 rail cars on backorder in North America.

The growth of rail shipments of oil in Canada is following a similar pattern to what already took place in North Dakota, which built its first rail facility in 2008. Today, about 550,000 barrels a day of high-quality oil from the Bakken Formation are being carried to refineries by rail from 22 terminals, according to Justin Kringstad, the North Dakota Pipeline Authority’s director. By December 2012, 64 percent of oil shipments went by rail and 27 percent by pipeline.

“In the past 2 years, there has been exponential growth in the use of rail to transport crude oil throughout North America, primarily originating from the Bakken in North Dakota and Montana, but also increasingly utilized in other production areas,” including western Canada, the State Department report said.

The report says that “a similar volume of crude oil” could be transported on existing rail lines to Stroud, Okla., where it could be put into existing pipelines in the nearby Cushing, Okla., pipeline and storage hub. The report said this option would require only the construction of rail terminals and storage hubs in ­Lloydminster, Saskatchewan and Stroud.

The State Department said that Lloydminster offers access to the two biggest Canadian railroads, Canadian Pacific and Canadian National, and a terminal could load about 13 100-car unit trains a day, more than the capacity of the Keystone XL. Each rail car carries 500 to 700 barrels of crude, with heavy crude at the low end of that range, and the length of a full train is about 1.25 miles.

Opponents of the Keystone XL pipeline have argued that oil sands producers would face similar, or even greater, obstacles — from Canadian environmentalists and influential First Nation tribes — in trying to obtain permits for alternative pipelines to either the western or eastern coasts of Canada.

But rail doesn’t require the same permits. And while there are tanker restrictions and limited port facilities on the west coast of Canada, rail to the United States may have fewer constraints.

“Oil will get to market. This is clear,” Gary Doer, Canada’s ambassador to the United States, said in an interview Friday. “Canadian oil and, for that matter, North Dakota and Montana oil is going to get to market,” he added, even if producers opt for rail.

“Do you not think the oil companies are going to lease whatever tank cars it takes? The product has to get to where it has to go,” said TransCanada chief executive Russ Girling. “Rail cars have moved oil forever and will continue to. They’re sort of a bridge to a pipeline, which needs critical mass.”