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Devon Energy Corp.'s 35,000 barrel per day Jackfish Projects processing plant, where Steam Assisted Gravity Drainage (SAGD) is used to extract bitumen from oil sands, operates near Conklin, Alberta, Canada, on Monday, June 28, 2010.Jimmy Jeong/Bloomberg News

The lengthy delay in a U.S. decision on the controversial Keystone XL pipeline has created sudden soul-searching for Canada's energy and political leaders, who have now turned their attention to opening the way for oil exports to Asia.

Without new pipe of some form, it will only be a few years before Canada's oil gets backed up and begins selling at a deep discount, a prospect that stands to erode corporate and government revenues by billions of dollars a year.

For that reason, the pressure on British Columbia to allow oil to flow across its land and water – for exports to China – is likely to be intense. But the difficulties that sidelined TransCanada Corp.'s Keystone line portend an equally tough future for sending oil to the Canadian West Coast, since the new pipelines required in B.C. are likely to face equally volatile protests – and an even thornier set of legal threats from first nations.

Indeed, Canada's best bet in the coming decade is likely to remain the United States – and even domestic markets in Ontario and Quebec. Getting oil to those places will require expanding existing pipelines, building new domestic projects and perhaps even scrambling to design and build pipes that haven't yet been given serious consideration. It may also mean considering alternatives like sending oil by train, a possibility contemplated by the U.S. State Department, which reviewed the $7-billion Keystone XL proposal and said Thursday it wants to study a change in route that will take more than a year to assess.

The delay has bolstered the ambitions of environmental groups opposed to the oil sands in the name of climate protection, and created numerous challenges for Canada's energy industry.

Companies are now wondering where they can ship future volumes of oil that won't stir new hornet's nests. It's a pressing question: Keystone XL had been expected to begin shipping oil by 2013. Now, it's unlikely to move oil before 2015, if at all, though TransCanada says the project remains intact. The very soonest an alternative can be built is 2014. By that time, Canada's oil exports, which are expected to grow by 1.5 million barrels a day in just 10 years, will start growing pinched enough that companies will, according to an analysis from IHS CERA, "face steeper and steeper price discounts for their crudes, as oil-sands production growth will outstrip new demand in existing markets."

Some have warned that prices could fall by $10 to $20 a barrel. With Western Canada now producing 2.6 million barrels per day, even a $10 discount threatens some $9.5-billion a year.

The stakes are high.

Outside of new pipes to B.C., several alternatives are already on the table. Enbridge Inc., TransCanada's chief competitor, could, with the addition of more pumps, push an additional 350,000 barrels a day of oil through existing pipes to Flanagan, a small Illinois town 170 kilometres southwest of Chicago. Enbridge has also considered two new pipelines, Flanagan South and Wrangler, that could move oil to the Gulf Coast, the target market for Keystone XL, which is designed to carry 700,000 barrels a day.

It's not a perfect solution: the Enbridge route is hundreds of kilometres longer than Keystone XL. And though the Enbridge pipes could potentially carry more barrels by 2014, that timeline may prove ambitious, since neither new project has begun seeking regulatory approval.

That suggests other projects could be needed first. Enbridge has considered reversing existing pipes to send western oil east as far as Montreal – and perhaps to the Atlantic coast.

It's also possible some new oil won't be carried in pipes. The past year has seen energy companies increasingly experiment with rail cars. There are important obstacles: it would take huge construction of rail cars to move big new volumes of oil, and there is not, for now, enough loading and unloading capacity built around train tracks.

But the State Department, in its review of Keystone XL, examined the possibility and found it burgeoning. Part of Keystone is to be filled with oil from Montana and North Dakota, where a new oil play is producing rivers of new oil. By 2013, the State review suggested, there will be enough capacity there to load 750,000 barrels a day onto railcars – up from just over 100,000 last year. That dramatic growth curve shows how rapidly new transportation forms can be adopted.

There are definite downsides to rail. Carbon emissions, cost, noise and community disruption would all be higher than a pipeline. Spills would likely be smaller, but accidents more frequent. One comparison found oil deliveries by rail produce three times as many fatalities, and nine times as many fires and explosions, compared to pipelines.

Still, rail has one major advantage: The train tracks have already been laid.

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