Oil by rail or pipelines? A false choice.

As the debate around the Keystone pipeline and crude by rail in North America grows, perhaps you have gotten the impression that whether by rail or pipe, tar sands oil will make it to market.  Nothing could be further from the truth. Tar sands crude-by-rail will not make up for missing pipeline capacity, and that is why stopping pipelines matters for keeping tar sands in the ground.

Even industry and their allies face the facts when asked about crude by rail;

• The CEO of TransCanada for example said [it], “wouldn’t have been on our radar screen because it’s not logical.”
• The CEO of Gibson Energy Inc. (a tar sands rail terminal company) announced in June that rail , “is not a panacea. It’s not going to replace pipe.”
• The [former] Canadian Natural Resources Minister said, “I don’t think anybody feels that it could be a substitute for pipelines.”

So then where is this idea that rail is going to be a silver bullet for tar sands producers transportation woes even coming from?

One place is the U.S. Department of State, which despite significant evidence to the contrary, argued that Keystone XL didn’t matter to climate emissions because rail would fill in the gaps and the tar sands would grow anyway.

Tar sands-by-rail is a bluff, that unfortunately the State Department staff appear to have fallen for.  Tar sands by rail has emerged as a desperate effort by producers faced with the real possibility of land-locked tar sands crude as pipelines face growing hurdles in every direction.  It is an attempt to prop up the narrative that tar sands growth is inevitable, that the oil is coming out of the ground and moving to market no matter what. But of course this is not the case. Like any industry, adequate and affordable infrastructure must be in place to get a product to market to make a business profitable. Pipelines achieve that for the oil industry in a way that rail never can.

A new report from Oil Change International entitled: Wrong Side of the Tracks: Why rail is not the answer to the tar sands market access problem, uses new market analysis to once again counter the misperception that rail can handle tar sands expansion plans in the absence of adequate pipeline capacity. The report acknowledges that rail is in a period of growth and should be seen as a dangerous risk to communities and those concerned about tar sands and the climate pollution they cause. But it concludes clearly that rail will not be the silver bullet for tar sands transportation woes.

Rail is too expensive, too logistically challenging, and too risky to be profitable enough to support expanded tar sands production. In the first quarter of 2014 rail was expected to enter a period of significant growth (relative to a very small base). Despite ramp up, shipping tar sands to the Gulf Coast by rail still represents a mere 6% of Keystone XL’s capacity. On top of this, rail failed to even turn a profit for producers in the first half of 2014.

Tar sands companies are already operating with very small profit margins when selling their low quality crude, so additional costs like those incurred shipping by rail, have a significant impact on their bottom line.

Shipping tar sands by rail also requires significant investment and infrastructure to maximize efficiency and make money. On top of these operating concerns, rail also faces the very obvious challenges of congestion and sharing the tracks with other commodities, weather, and growing regulatory costs as governments grapple with the increasing number of crude-by-rail explosions, derailments, and tragedies.

Rail versus pipeline is a false choice that we do not have to make. The real choice we face is between climate damage resulting from reckless tar sands expansion, or a safe and just low carbon economy that ensures a safe climate and environment for generations to come. This can only be achieved if we act soon to phase out high carbon fuels, and focus on building energy that doesn’t take the planet down with it.

Rail is a niche market and can’t replace pipelines, so let’s move onto the real conversations we need to have about our energy future, ask the right questions, and make the right choices.

Stockman is the research director with Oil Change International, a research, communication, and advocacy organization focused on exposing the true costs of fossil fuels and facilitating the coming transition towards clean energy.