PBF Energy Inc. is making a big bet to bring Alberta crude by train to its refinery near Philadelphia. The company is already receiving 40,000 barrels per day of Alberta's oil sands bitumen by rail at its Delaware City refinery on the U.S. East Coast, and is working to double that capacity to 80,000 barrels each day.
But the rail strategy of PBF and other energy players took a knock this week from Prime Minister Stephen Harper, who questioned the environmental impacts of crude-by-rail.
PBF has invested heavily in its rail handling capacity at the 190,000-barrel-per-day refinery on the Delaware River south of Philadelphia – the only one on the U.S. east coast capable of processing Canadian heavy crude. Receiving both bitumen and light oil by rail from western North America, PBF can now accommodate two "unit trains," the 100-car configuration that is increasingly used to carry crude oil around the continent.
PBF chairman Thomas O'Malley was given a chance to boast about his company's plans when he was among several American executives who met with Mr. Harper in New York this week. But before that meeting, the Prime Minister questioned the use of rail to move crude, telling a meeting at the Council on Foreign Relations that the North America's growing reliance on crude trains is "more environmentally challenging" than building pipelines.
Mr. Harper was plugging for Washington's approval of the Keystone XL pipeline, and suggested Canada would move increasing quantities of crude to the U.S. markets whatever President Barack Obama decides on Keystone. But in the absence of new pipelines, the industry will turn to the railways to get the crude to market, the prime minister said, adding that trend raises "the real environmental issue" in the debate over TransCanada Corp.'s Keystone project.
His comments echoed TransCanada Corp. chief executive Russ Girling, who has warned that a failure to approve Keystone would backfire environmentally by forcing the industry to rely more heavily on rail transport.
Mr. O'Malley wasn't available for comment Friday, but PBF spokesman Michael Karlovich said the industry's growing use of rail does not pose an environmental threat.
"Railroads and pipelines are both safe, reliable modes of transport," he said in an e-mail. "We are confident that the railroads that haul our crude oil and products in both Canada and the United States are fully committed to safe, reliable operations."
Industry associations in Canada and the U.S. insists their members' safety record compares favourably with the pipelines. The Association of American Railroads argues that pipeline companies spill more crude – as a percentage of volume carried – than railways, though the number of accidents is higher for trains. An association fact sheet says that, in 2012, trains spilled 0.00006 per cent of their crude cargo and pipelines lost 0.0005 per cent of theirs.
Michael Bourque, president of the Railway Association of Canada, said the crude-carrying trains are 2.7 times more energy-efficient – per barrel per kilometre – than pipelines, and therefore emit less of the greenhouse gas carbon dioxide per barrel in transporting the oil. "On the GHG side, we are highly fuel efficient," he said. " Our GHG intensity, we believe, is less than that of pipelines."
But the rail companies have been a fairly minor players in moving crude around the continent, and their safety record will be challenged as they move rapidly growing numbers of 100-car trains through large cities and heavily populated suburbs.
The U.S. Department of Transportation supports Mr. Harper's contention that pipelines pose less environmental risk in moving crude than rail. In a review of oil-and-gas pipeline safety completed last fall, U.S. Transportation Secretary Ray LaHood said: "Pipelines are the safest way to deliver these resources."
In a report released this week, the International Energy Agency said U.S. shipments of crude by rail are forecast to reach 680,000 barrels per day this year from just 20,000 barrels in 2009. It said Alberta rail shipments will reach 500,000 barrels per day by 2015 compared with 200,000 barrels currently. The IEA also said that more pipeline capacity will be needed in North America, and particularly from Alberta.
Though rail costs have been dramatically reduced, producers still face higher transportation costs using trains rather than pipelines.
Chad Friess, an analyst with UBS Securities, said pipeline costs from Alberta to the U.S. northwest are about $5 per barrel, while rail is about $11. Pipeline tolls to the U.S. Gulf Coast average about $9 per barrel, he said, while it can be as high as $15 by rail.
With files from reporter Jeffrey Jones in Calgary