Monday, September 8, 2014

Wrong Side of the Tracks: Why Rail is not the Answer to the Tar Sands Market Access Problem

by Lorne Stockman, September 8, 2014

Oil Change International, September 2014

This report examines the development of bitumen-by-rail at a time when its growth is expected to take a substantial leap. How much bitumen is actually moving by rail in 2014? What is the capacity of loading and unloading terminals that are realistically positioned to handle tar sands bitumen? How profitable is bitumen-by-rail? What are the challenges it faces, and what can we realistically expect for the future? This report addresses these questions and more, and concludes the following:
  • Bitumen-by-rail to the U.S. Gulf Coast currently provides less than 6 percent of the Keystone XL pipeline’s proposed capacity and total bitumen-by-rail imports into the U.S. are around 3 percent of the total capacity required to accommodate future Canadian crude oil production growth. Even with planned expansions, it appears highly unlikely that rail could replace proposed pipeline capacity.
  • While planned projects could raise the capacity to load tar sands onto trains to around 800,000 barrels per day (bpd) by 2016, utilization of loading capacity has to date rarely exceeded 50 percent due to logistical and market factors that are expected to persist. If this utilization rate remains constant, this translates to a potential 400,000 bpd of bitumen-by-rail traffic by 2016. This falls far short of the 4 million bpd of total additional transportation capacity required by the tar sands industry to accommodate future growth to 2030.
  • Unit train terminals, which are needed to load large quantities of bitumen onto trains, currently only load pipeline-specified diluted bitumen (dilbit), because pipelines are the only means by which large quantities of bitumen can be delivered to the terminals. This means that unit train shippers cannot avoid the diluent penalty (the cost of expensive diluent that enables bitumen to flow in a pipeline) when shipping bitumen by unit train. Therefore, tar sands producers have yet to accomplish the optimum configuration of unit train shipments of undiluted bitumen that has been cited by the U.S. State Department and others as being cost competitive with pipeline transport. It is also far from clear that this can be achieved at a significant scale in the future.  MORE

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