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Rail Is not Another To The Keystone XL Tar Sands Pipeline

In its recently released draft environmental assessment of the Keystone XL pipeline that might convey tar sands from Canada to the Gulf Coast for export, the State Division attempts to make the case that rail might be a viable different. The State Department argued that Keystone XL would have little impact on tar sands manufacturing because rail may provide an equally possible and economic transportation option for tar sands. This is a essential component of the draft environmental overview as a result of while State determined that tar sands is dirtier than typical oil, it concludes that Keystone XL would have little impact on the expansion of tar sands and therefore policymakers and the general public needn’t consider the impacts of that expansion. Nevertheless, State’s assumptions are on the unsuitable observe. The Keystone XL tar sands pipeline will drive tar sands expansion. Enlargement relies on tar sands being in a position to succeed in the excessive costs of overseas markets. However pipelines to the east and west are stalled and rail – as we will show here – is not an economically viable alternative to Keystone XL. And with out Keystone XL, financial analysts are already saying that the tar sands industry’s enlargement plan will go off the rails.

In its most latest environmental review, the State Division is repeating its argument that the Keystone XL tar sands pipeline can have limited influence on greenhouse gasoline emissions because rail transport is an economically possible different. State made several flawed assumptions in its environmental review, together with 1) an unrealistically low value for transporting tar sands by rail from Alberta to Texas, 2) an inaccurate estimate of tar sands manufacturing prices and three) an unrealistic assumption that tar sands production prices is not going to enhance with rising labor, materials and energy prices. In its evaluation, State relies on statistics that pertain to rail transport of shale oil from North Dakota but that don’t apply to Alberta’s tar sands. Given the unfeasibility of transporting large portions of tar sands by rail and the huge opposition to tar sands pipelines to the East and West coast of Canada, Keystone XL is the lynchpin for vital expansion of the tar sands – and trade analysts agree. Tar sands is costly to extract and course of – with breakeven prices approaching $a hundred per barrel – and low-cost transportation is required to make new initiatives worthwhile. Liquefied Without Keystone XL and the cheap transportation it offers, the tar sands business won’t reach its objective of tripling manufacturing by 2030 and the significant local weather emissions that include it.

A cornerstone of State’s conclusion that rail is a possible different to Keystone XL is the example of rail use by oil producers in North Dakota and Montana. In that region, oil producers dealing with worth discounts and transportation constraints have turned to rail to maneuver their crude to market. However, State doesn’t account for the rationale that rail has exponentially grown in North Dakota whereas it has remained a extremely marginal choice for tar sands producers.

Since 2010, transportation constraints have created vital discounts in costs that producers in each North Dakota and Alberta receive for his or her oil production. These reductions have caused producers in North Dakota to show to rail to move their product to market. In 2009, rail solely equipped sufficient capacity to move 30,000 bpd out of North Dakota. After vital funding in new rail terminals, rail provided over 730,000 bpd by 2012. When folks discuss about the upsurge of rail transport within the United States and Canada, this is what they’re speaking about.

Meanwhile during the same time period tar sands producers have really confronted better transportation constraints and higher value discounts than those in North Dakota – and yet, they haven’t seen an analogous upsurge in rail.

Determine 1. Discounts between North Dakota’s Bakken crude and Alberta’s Chilly Lake crude and similar worldwide crudes (evaluating Mexican Maya with Chilly Lake tar sands and Bakken with Brent).

State Department’s 2011 Predictions about Fee of Rail Enlargement from Alberta Have Proven False
In its August 2011 environmental evaluation, the State Department’s market evaluation argued that “shipment of typical or oil sands crude in Canada is arguably just now reaching a take-off point… the implication is that we may see a growing scale of shipment of WCSB [Western Canadian Sedimentary Basin] crude by rail in the following one to two years.” In each its 2011 and 2013 environmental opinions, the State Division has noted that rail capability can be expanded in comparatively short time spans – taking at most a year to develop present facilities.

Almost two years since State’s 2011 prediction, there has been little proof of a North Dakota trajectory for tar sands to the Gulf by rail. The 2 measures accessible to evaluate this are 1) how much Canadian oil is shifting throughout the U.S. border by rail 2) how a lot Canadian crude is being processed in Gulf Coast refineries (which are additionally served by numerous pipelines from the Midwest).

In 2011, less than 5,000 bpd of Canadian crude moved into the United States by rail while 150,000 bpd of Canadian crude was processed in Gulf Coast refineries. Whereas rail data for crude oil across the Canadian border isn’t available for 2012, there isn’t a proof of great volumes of tar sands being shipped by rail to Gulf Coast refineries. Gulf Coast refineries processed less than one hundred,000 bpd of Canadian crude in 2012. In December of that yr, the month by which there were discounts in excess of $60 per barrel for tar sands compared to worldwide benchmarks, solely 50,000 bpd of Canadian crude was processed within the Gulf.

State’s new market analysis for rail doesn’t explain why a rail increase has happened in North Dakota and has failed to take action in the Alberta tar sands. In reality, State’s environmental assessment uses lots of the same assumptions for rail transport that it did in 2011, with out either explaining or acknowledging the failures of these assumptions to accurately predict the lack of rail growth for tar sands producers up to now.

Transportation of tar sands by rail from Alberta to Texas is just too petroleum equipmentmpany salt lake city government expensive to assist expansion
The reason why rail isn’t a possible different to Keystone XL is that it is simply too expensive to help tar sands expansion. State’s conclusions to the opposite are as a result of their considerably underestimating the cost of rail transport. In 2011, State assumed that rail to the Gulf would cost producers $9 to $12.50 per barrel. Now they estimate that it’s going to value them about $15.50 a barrel.

In actuality, the only tar sands producers which are efficiently getting crude from Alberta to the Gulf via rail and barge are doing so at a value of over $30 per barrel. The State Department’s rail costs are estimates – and the fact that producers are currently paying twice as a lot to move their product to the Gulf suggests State is considerably underestimate the price of rail from Alberta.

Determine 2. State Department rail price estimates in comparison with actual prices
Vacuum/Atmospheric Distillation UnitPipeline value $/bbl (EnSys 2011 forecast)

Rail value $/bbl (EnSys 2011 forecast)
Rail price $/bbl (State 2013 draft SEIS)

Actual Rail value $/bbl (2013)
To Gulf Coast from Edmonton/Hardesty

$7
$9 – $12

$15.50
$31

The reason that this is vital is as a result of the high breakeven value for new tar sands tasks cannot bear the excessive cost of rail. New tar sands mines require oil costs of up to $ninety five per barrel simply to break even. The projects are uneconomic after tacking on an addition $30 in transport prices. Nevertheless, there may be presently a steep low cost for tar sands crude which has brought tar sands costs all the way down to between $50 and $60 per barrel. These reductions are anticipated to persist and deepen over the subsequent few years.

Figure three. The discount between Chilly Lake tar sands and Mexican Maya crude (prices in $ / bbl)
Firms with new tar sands manufacturing projects have three options. First, they will promote their tar sands in Alberta at lower than $60 per barrel – a $forty+ a barrel discount and considerably below the breakeven worth of most new projects. Second, they will decide to spend $25 to $30 per barrel to ship their crude via rail to the Gulf Coast in order to sell it at the worth of comparable heavy crudes (proper now around $ninety a barrel). This nets them $65 to $70 a barrel, which continues to be beneath the break- even worth for many tar sands initiatives. Third, they will cancel or postpone their mission. The only possibility here that doesn’t lose cash for new producers is the third one.

New tar sands projects are prone to proceed to face tight profit margins
State’s conclusion that rail is an economically feasible option can also be primarily based on a elementary flaw in its evaluation of the long term profitability of tar sands manufacturing. While State acknowledged that many new tar sands projects are economically challenged, it assumed that oil costs would enhance via 2035 and concluded that if production prices stay constant, new tar sands initiatives would be capable to bear slightly larger transport prices. State expresses this argument within the graph below in which it provides its low estimate of the cost distinction between rail and pipeline to NEB’s 2011 breakeven value and assumes that these new production prices will stay fixed by means of 2040:

Source: State Division draft SEIS for Keystone XL, 1.Four-fifty three.
There may be elementary flaw on this assessment. It could be generally poor recommendation in any trade to assume that manufacturing costs will stay fixed – and that is especially true with the tar sands trade. Tar sands manufacturing is dependent on the cost of labor, material and power, and these prices have been rapidly rising and are likely to continue to take action if industry pursues its plan to triple production by 2030. Actually, petroleum equipmentmpany salt lake city government it seems that the 2011 breakeven costs which are State used are already significantly decrease than those confronted by tar sands producers right now.

Fig. Four. Rising Costs of Tar Sands Production
NEB 2011 (Baseline for State’s 2013 draft SEIS)

Alberta 2011 (ERCB)
Alberta 2012 (ERCB)

New In Situ
$fifty one – $61

$47 – $57
$50 – $78

New Mining (no upgrading)
$sixty six – $76

$sixty three – $eighty one
$70 – $91

New Mining w/ upgrading
$86 – $96

$88 – $102
NA

Tar sands manufacturing prices have been quickly increasing and are more likely to proceed to do so. The higher bound of tar sands breakeven prices appear to have elevated by about $15 a barrel throughout all forms of projects from 2011 to 2012.

Getting the manufacturing and transport prices proper is critical to understanding the impression that Keystone XL can have on tar sands production and local weather as a result of comparatively small changes have a significant impression on manufacturing. Even in its flawed estimates, State forecasts if rail elevated transport costs by $2 per barrel, it could result in a reduction of eighty four,000 bpd of tar sands manufacturing, while a $7.50 per barrel increase in cost will result in a reduction of 315,000 bpd of tar sands production. In reality, State’s underestimates current rail prices by about $15 a barrel and present manufacturing prices by as much as $20 a barrel (whereas assuming they will not proceed to increase sooner or later).

If each $2.50 in greater prices reduces tar sands production by a hundred,000 bpd, underestimating the costs of manufacturing and rail transport by $35 per barrel ignores the very substantial impression that a rejection of Keystone XL would have on tar sands manufacturing and local weather emissions.

Keystone XL is “a key supply chain link” and a driver of tar sands expansion and local weather change
Industry analysts typically acknowledge this – and this is the reason they have come to basically totally different conclusions than the State Division did in its most recent draft SEIS. Banks, financial analysts and business experts perceive that the occasion of a rejection of Keystone XL, new tar sands production tasks will likely be canceled or postponed. In a recent quick term market evaluation, RBC Dominion Securities Inc. known as Keystone XL “a key supply chain link” and estimated that in the event of a rejection of Keystone XL, tar sands manufacturing development could be reduced by 450,000 bpd by 2017, as manufacturing projects are deferred. CIBC forecasts that by 2030, market constraints will scale back tar sands manufacturing by as much as 2.Four million bpd by 2030. Goldman Sachs, TD Economics, Customary and Poor, Wooden MacKenzie and others have revealed financial evaluation indicating that importance of Keystone XL to tar sands pricing and manufacturing.

“If Keystone XL does not occur or gets delayed a full yr plus, you’re speaking about projects having to be put on the shelf,” Phil Skolnick, analyst at Canaccord Genuity, March 5, 2013

Infrastructure is needed for tar sands enlargement, and it is evident to most observers that the permit decision for Keystone XL performs a essential function in the way forward for tar sands manufacturing and the greenhouse fuel emissions associated with it. The first step in addressing local weather change is to cease making the issue worse – and which means rejecting the Keystone XL tar sands pipeline and the upper carbon emissions associated with it.