By Daniel Gilbert, Ben Lefebvre and Chester Dawson
The U.S. government is issuing its final environmental study of
TransCanada Corp.'s Keystone XL oil pipeline, resurrecting the
energy industry's hope that the long-delayed project could be
approved.
The 830,000-barrel-a-day line, which has been hanging in
political limbo for years, is a potential boon to crude producers
in western Canada and refiners on the U.S. Gulf Coast, but is no
longer widely seen by the oil industry as the panacea it once
was.
The proposed $5.3 billion pipeline would create a major new
artery for crude from Canada's oil sands and North Dakota's Bakken
Shale to the Gulf of Mexico, home to America's refining hub. Many
in the petroleum industry stopped banking on the 1,200-mile line
ever being built and made arrangements to ship North America's
rising crude output by alternative means.
The Keystone XL line has met stiff opposition from
environmentalists because it would transport from western Canada
heavy, tar-like crude that creates even more emissions than
conventional drilling. The two-year delay to build Keystone hasn't
stopped the flow of oil, though. Oil producers, pipeline companies
and refiners have hit upon new ways to get crude from wells to
refining complexes, including expanding capacity on existing
pipelines and shipping crude on railroads.
Even without Keystone XL, Canadian oil exports to the U.S. rose
in 2013. Canada shipped an average of 3.1 million barrels a day of
oil to the U.S. between January and November--the latest data
available from the U.S. Energy Information Administration--a 6%
increase over the same period of 2012.
Railcars increasingly are carrying crude oil out of remote
inland oil fields in Canada. U.S. companies shipped 280 million
barrels of oil by rail during the first nine months of 2013, nearly
double the volume in 2012 and almost six times the traffic in 2011,
according to data from the Association of American Railroads.
Exxon Mobil Corp., a major producer in Canada's oil sands, said
Thursday it is building a railway loading facility in Edmonton,
Alberta, to "enable efficient, cost-effective transportation of
heavy crude." The terminal is expected to be complete by early next
year.
"Pipeline, rail, barge--we are using all of the logistics
opportunities available to us," David Rosenthal, Exxon's vice
president of investor relations, said Thursday as the company
reported annual profits.
Even so, Exxon Mobil's Canadian subsidiary, Imperial Oil Ltd.,
has secured nearly 400,000 barrels a day of additional pipeline
capacity out of Alberta on proposed pipelines, including Keystone
XL.
The project still matters to refiners along the Gulf Coast,
including Valero Energy Corp. and Marathon Petroleum Corp., which
have invested billions of dollars in recent years to process heavy
crude like the kind coming out of Canada.
"We're seeing some supplies come in from Canada on other
pipelines, by rail, some supplies by barge," Valero spokesman Bill
Day said. "But it's not as efficient as having one gigantic
pipeline."
Valero had signed an agreement to purchase oil from Keystone XL,
but it has expired.
While railways have accommodated much of the booming supplies,
this method of shipping also faces risks. Regulators are taking a
closer look at railcars after a string of recent accidents,
including a fiery crash in Quebec last summer that killed 47
people. Efforts to make tanker cars safer could mean fewer of them
will be available, according to Cowen & Co. analyst Sam
Margolin.
"Keystone is more important now because rail is starting to meet
more regulatory attention," he said.
Canada's oil sands are projected to yield more than double the
amount of crude in 2025 than they did in 2012, rising to 4.5
million barrels a day, according to the Canadian Association of
Petroleum Producers. The extra 2.7 million barrels a day would
require the construction of more pipelines and rail terminals.
If Keystone XL is built, its effects are likely to ripple beyond
the U.S. A surge of heavy Canadian crude at the Gulf Coast could
crowd out similar types of oil that U.S. refiners import from
Venezuela and Mexico. The two countries shipped a combined average
of 1.9 million barrels a day of heavy oil to the U.S. in 2012, the
last full year for which federal data are available.
Alison Sider contributed to this article.
Write to Daniel Gilbert at daniel.gilbert@wsj.com, Ben Lefebvre
at ben.lefebvre@wsj.com and Chester Dawson at
chester.dawson@wsj.com
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