The public debate over pipelines has included talk about shipping crude by rail as an alternative mode of transport, a practice that’s been embraced by some conventional oil producers in regions not connected by pipelines.
In its most recent crude forecast, for example, the Canadian Association of Petroleum Producers (CAPP) notes that rail exports from North Dakota rose from about 50,000 barrels per day (b/d) in March 2011 to about 225,000 b/d in March 2012 thanks to the rapid rise in production from the prolific U.S. Bakken formation (PDF).
Movement by rail of crude produced in western Canada appears to be growing also, but more slowly. More than 8,800 rail cars were loaded in March 2012 for oil and crude fuel transport compared to just over 5,600 rail cars in March 2011, according to Statistics Canada figures included in the CAPP forecast.
Pros and cons
While the use of rail may be growing, this form of transport, like all others, has its pluses and minuses (PDF).
Compared to trucks, rail proponents are quick to point out that rail requires only a fraction of the fuel, which means less greenhouse gas emissions. As well, rail can move crude faster than trucks while helping relieve road congestion. Rail has some advantages over pipelines too, including faster delivery, no requirement for a diluent, and market access flexibility.
As stated in a previous OSQAR, though, rail falls short when it comes to matching the massive transport capacity and reliability offered by pipelines. As well, rail requires capital investment in tank cars and new loading facilities that must also have corresponding unloading terminals at the destination centres.
A good option for oil sands?
There’s no question that rail is a viable option for some conventional crude production. But is rail the little engine that could for transporting oil sands crude?
It’s well-known that oil sands developers are seeking access to new markets and greater access to existing markets, as pipeline capacity constraints are among the factors discounting the value of oil sands crude relative to world prices. Increased market access is paramount, with oil sands production slated to rise significantly in the coming years. CAPP’s crude oil forecast, for example, predicts oil sands production will grow from the current 1.6 million barrels per day to 5 million b/d by 2030.
Pipelines remain mode of choice
Given the uncertainty over proposed pipeline projects, Suncor and other oil sands producers are evaluating rail as one potential bridging solution if pipeline capacity is not sufficient to move production to markets. Add to that a grandiose proposal for new railway (PDF) from the oil sands to an existing marine terminal in Valdez, Alaska for shipping to Asia.
Pipelines, however, remain the oil sands’ transport mode of choice. With their sizable capacity advantage, pipelines appear to be the most efficient way to transport oil sands crude to markets that need it.
But while the pipe is still king in the oil sands, rail may warrant consideration for use in a company’s short- and long-term transportation mix.