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USD Group’s facility outside of Hardisty will move an estimated 28,000 barrels of oil a day.

Amber Bracken/The Globe and Mail

The small Alberta town that was planned to be the starting point for the Keystone XL pipeline could soon host one of Canada's largest oil-by-rail loading facilities.

A massive complex of crude oil storage tanks dominates the horizon around the quiet Alberta farming town of Hardisty. Despite a collapse in energy prices, hulking new tanks are under construction as more of the province's crude continues to pour through pipelines into the tank farm, helping transform Hardisty into Western Canada's benchmark oil hub.

The Keystone XL pipeline's 1,897-kilometre route would have started near the storage facility. About two months after U.S. President Barack Obama rejected the TransCanada Corp. pipeline project, the anger has started to subside in Hardisty. All eyes are now turning to a tangle of railway track several kilometres to the east.

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By next December, 480 train cars could be filled daily with crude oil on a long loop of railway track that runs along provincial Highway 13. With blueprints for a 20-kilometre oval of rail track on the Alberta prairie, Houston-based USD Group has filed an application with the Canadian Environmental Assessment Agency to double the size of its existing oil-loading facility east of Hardisty.

USD Group rejected multiple requests for comment, but it is moving into controversial territory: Transporting crude by train has been a touchy subject since the 2013 oil-train derailment in the small Quebec town of Lac-Mégantic, killing 47 people and destroying much of the historic core. Despite the tragedy, the rail option has remained and even grown, with long trains comprised of upwards of 70 black cars filled with oil becoming a common sight across Canada.

Once the Hardisty facility is completed, an estimated 280,000 barrels of oil a day could be pumped from its storage tanks and put onto rail cars destined for refineries on the Atlantic and Gulf Coasts. "It's almost like a new pipeline. It's small compared to most pipelines, but it's getting up there," said Steven Paget, an analyst at FirstEnergy Capital in Calgary. The Keystone XL pipeline would have moved 830,000 barrels daily.

The new rail hub comes at a time when Alberta's economy is expected to contract by 1 per cent this year and the unemployment rate jumped to 7 per cent in November, up from 4.4 per cent a year earlier. While some construction work on the tank farm has kept a trickle of workers coming into Hardisty, the town is being hammered by Alberta's bust. The small stores on its main street are hurting for shoppers.

"People are really worried about their jobs. It's not Keystone, it's $40 oil," said Won Oh, who owns a liquor store in Hardisty. (Brent crude fell below $35 U.S. a barrel on Wednesday.)

Hadi Halabi has lived in Hardisty for three years, and while business at the town's main supermarket suffered in the wake of the Keystone decision, he also keeps a close eye on the price of oil. "The town was booming, there was work, but with the low price of oil, everyone is taking life day by day," he said.

Hardisty's laundromat is near the town's southern end, where a sports bar and two new hotels cater to the oil and construction workers who once pushed the population of 700 to more than 2,000 during busier days. Marg Shott, 59, says she's "the momma" for the young employees who still pass through to work in the tank farm. She mends their clothes, fixes anything broken and cleans up after them, while her laundromat serves as Hardisty's social centre, where men in overalls and a stream of seniors stop in, dropping off mounds of dirty clothes and sharing gossip over a pot of coffee that never runs dry.

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"Over the last few months, my work changed from cleaning oily work clothes to cleaning construction overalls," she said, illustrating a small but tangible sign of the downturn in Alberta's oil-dependent economy. "In 2008, it was slow. It was scary," she said of the last major crash in oil prices. "This time, not so much. But I'm hopeful something will change for those boys. They're suffering, they're down in the dumps."

Salvation could come in the form of oil trains. Few had heard about the mass transportation of oil by rail before the Lac-Mégantic disaster – the industry had barely existed a year earlier. Since the derailment on July 6, 2013, the amount of oil on Canada's rails has increased substantially, peaking at 165,998 barrels daily during the summer of 2014. The volume has fallen by half since then and has begun to rebound quickly. Mr. Paget expects the amount of oil carried in train cars will soon surpass the previous record, especially after the Hardisty terminal is expanded.

"The total capacity for crude by rail could be as high as one-million barrels per day in Canada, but some of those locations aren't very handy as crude export hubs. Hardisty is," he said. "I think USD is doing the right thing. I'm guessing they only did it because they have a deal with a major shipper."

While there are lingering questions about the safety of transporting vast quantities of oil on Canada's railways, trains offer advantages compared with pipelines. Oil transported by rail could arrive as much as two weeks sooner on the Gulf Coast than it would by pipeline. The cost of building the infrastructure is also much lower as pipelines need as much as three decades of operations to pay for themselves, while rail terminals can turn a profit in as little as a year.

Speaking on a conference call with investors, USD Group chairman Dan Borgen explained the company sees its Hardisty terminal as a long-term venture. While the level of oil extracted from shale formations in the United States has tended to fluctuate along with the daily price of oil, Canada's oil sands is experiencing a slow increase.

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