Biden Keystone XL Snub Props Up Crude-by-Rail

(Bloomberg) -- U.S. President Joe Biden’s decision to cancel the Keystone XL pipeline is sparking renewed interest in shipping Canadian oil-sands crude by rail, and that comes with its own environmental risks.

Cenovus Energy Inc. and Imperial Oil Ltd. have increasingly turned to trains to move their crude, with oil exports by rail from Canada more than tripling since July. Now, Gibson Energy Inc. -- an oil shipping company that signed a 10-year contract with ConocoPhillips to process oil-sands crude before loading it at its train terminal -- expects other producers to follow suit.

Without Keystone XL, which was scheduled to enter service in 2023, rail is poised to become a more important way for Canadian oil to reach U.S. Gulf Coast refineries, which need the heavy crude to replace declining supplies from Mexico and Venezuela. That means the risk of derailments may also rise. Rail also creates more emissions than pipelines, with the cost of air pollution and greenhouse gases more than double the costs associated with pipelines, according to a 2017 study by Carnegie Mellon University and University of Pittsburgh.

“Those U.S. refineries need that heavy crude oil produced by Canada,” Sean Brown, Calgary-based Gibson’s chief financial officer, said in a conference call Tuesday. “Discussions continue to heat up.”

Gibson expects that by the third or fourth quarter it will start a 50,000-barrel-a-day facility that will maximize the crude content in rail shipments by removing diluent used to move the crude through pipelines to its terminal in Hardisty, Alberta.

Plans for other diluent recovery units, or DRUs, are also emerging with a small one built near Cenovus Bruderheim Rail terminal.

Biden rescinded a permit granted by his preprocessor Donald Trump to build Keystone XL on his first day in office, citing environmental concerns. Canadian Prime Minister Justin Trudeau said on Wednesday, following a virtual meeting with Biden, that the U.S. president wasn’t going to change his mind.

“I think it’s very clear that the U.S. administration has made its decision on that, a decision that we disagree with and are disappointed by,” he said.

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