(Adds details throughout)
By Catherine Ngai
May 21 TransCanada Corp is in talks
with customers about shipping Canadian crude to the United
States by rail as an alternative to its Keystone XL pipeline
project that has been mired in political delays, Chief Executive
Russ Girling said on Wednesday.
"We are absolutely considering a rail option," Girling told
Reuters on the sidelines of a conference in New York. "Our
customers have needed to wait for several years, so we're in
discussions now with them over the rail option."
The comments are the first to confirm growing speculation
that TransCanada might use more costly and controversial railway
shipments as a stopgap alternative to the Keystone XL pipeline,
whose approval has been delayed by the U.S. government.
Girling said the firm was exploring shipping crude by rail
from Hardisty in Canada, the main storage and pipeline hub, to
Steele City, Nebraska, where it would flow into an existing
pipeline to the Gulf refining hub.
TransCanada has waited more than five years for the Obama
administration to make a decision on the $5.4 billion project,
which would carry up to 830,000 barrels per day of crude from
the oil sands of northern Alberta to the U.S. Gulf Coast.
While the project has received a mostly favorable
environmental report, the State Department last month delayed a
decision beyond the mid-term elections in November while a legal
dispute over the line's route in Nebraska is settled.
The pipeline has drawn sharp criticism from environmental
groups who say it will fuel more production of Canada's
energy-intensive oil sands. But the oil-by-rail movement has
also come under scrutiny after a series of explosive
derailments, including the one in Lac-Megantic, Quebec, last
summer that killed 47.
"It's an irony that the adamant opposition of environmental
organizations and others against oil sands-derived crude have
actually created a phenomenal opportunity for rail to pick up
the slack," said David McColl, an analyst at Morningstar, Inc.
The line has the backing of the Canadian government and
conservative Prime Minister Stephen Harper called the project "a
no-brainer." Canada is counting on new export lines to boost
discounted oil prices in the country and accommodate rising
production from the oil sands.
Demand to ship crude by rail has gathered pace in Canada as
producers scramble for alternatives to congested export
Canadian crude-by-rail exports jumped to 146,047 bpd in the
last quarter of 2013, an 83-percent year-on-year surge,
according to the National Energy Board.
With Keystone XL and a number of other new pipelines
projects mired in regulatory delay and environmental opposition,
the crude-by-rail boom shows little sign of slowing.
Jarrett Zielinski, chief executive officer of TORQ
Transloading, which is building Canada's largest unit train
terminal in Kerrobert, Saskatchewan, said TransCanada would need
to load at least roughly nine unit trains per day to rival the
takeaway capacity of Keystone XL, if they were to load raw
Zielinski said that much extra crude traveling on Canada's
rails, in addition to the new rail loading projects already
underway, could strain the system.
"The rail network would need more infrastructure and
people," he said. "It's my fear that the current rail
infrastructure would be insufficient, although it could be
scaled up quickly."
(Additional reporting by Scott Haggett and Nia Williams in
Calgary and Timothy Gardner in Washington; Editing by Jessica
Resnick-Ault and Marguerita Choy)