The aftermath of President Barack Obama's decision to delay the Keystone XL (KXL) pipeline continued all through last week with ceaseless tweets, blogs, articles and protest demonstrations.
Without discussing pros and cons, nor diminishing the value of the core debates, it strikes us that the whole KXL delay has gone beyond the point of being yesterday's news.
Headliners, activists and pundits continue to flog an issue that bears little relevance to the reality of how North American oil commerce and supply systems have already evolved, and are being shaped for the future.
As we have written several times in the past, Canada's oil export trend to the United States has not been held back as a consequence of all the time, money and energy spent on trying to plug this still-fictitious pipe. That's not an opinion or a conjecture. Updated numbers from the U.S. Energy Information Administration show that Canadian oil exports to the south continue to chart an all-time high, up 45 per cent since the dial was turned up on the KXL ruckus five years ago. More striking is that the rate of growth of the exports, now at plus 200,000 barrels a day per year, has accelerated to the steepest trajectory ever.
In fact, the inconvenient truth is that the efforts to hold up KXL as a means to stifle oil sands output have actually been a catalyst to accelerate the growth and reach of Canadian exports into the United States and beyond. Starting in early 2011, the expectation of pinched oil arteries due to pipeline delays drove markets to discount the price of oil barrels that were perceived to be stranded, especially those in Canada. The fiscal pain was a loud signal to purveyors of alternative transport modes, mostly railway executives, who salivated at the arbitrage opportunity, and the potential to take permanent market share away from a tight club of pipeline companies.
So the opportunists moved in with their iron horses and their century-old transport infrastructure. Brochures from railway companies such as BNSF gushed about the opportunity. Canada was prominently displayed in the literature. Producers were told that they could deliver their oil to markets, "up to 5X faster on a crude unit train versus by pipeline," which means they could get paid earlier too. One of several railway operators getting into the game, BNSF alone claimed that by the end of 2014 they would "offer service to more than 50 destinations that service inland and coastal refineries."
Right now, Canadian oil-by-rail facilities that are already built, under construction or proposed are tallying up to a potential capacity of 1.5 million barrels a day (MMB/d). Over 300,000 barrels are already on the rails every day.
In fact, the State Department's own report on KXL, Final Supplemental Environmental Impact Statement for the Keystone XL Project, January 2014, clearly documented what was happening on page 11. The "before" and "after" picture of rail and barge supply chains – from Canada all the way down the spine of the continent to the Gulf of Mexico – illustrates the rapid proliferation of alternative hydrocarbon transport systems in response to pipeline resistance.
The unintended consequence of protest is that in less than two years, oil producers on both sides of the border will be stronger than ever before, with faster, more flexible and unrestrained market access to any point on the continent. Recently announced rail transport policy directives and regulations will only cement the market presence of this formidable new carrier of oil over the long term.
But even all of this is yesterday's news.
There are bigger things to think about. What will the political, military, environmental and economic consequences be when an integrated oil entity known as "Canada+USA Inc." enters the global arena with meaningful exports of oil sands and potentially equally contentious hydraulically fractured oil? Recently, this combined mega-producer became the world's largest (10.8 MMB/d), surpassing each of Russia and Saudi Arabia (see Figure 1). Already, barrels from Canada+USA are starting to seep directly into the global marketplace in various forms of petroleum. It won't be long before the seeps turn into scaled-up supply chains that compete barrel-to-barrel with nationally concentrated producers that have dominated world oil trade for decades.
It's time to start talking about tomorrow's big news.
Peter Tertzakian is chief energy economist at ARC Financial Corp. in Calgary and the author of two best-selling books, A Thousand Barrels a Second and The End of Energy Obesity.
Peter Tertzakian