TransCanada Corp. got a boost for its proposed Keystone XL pipeline with a new study that says the project's approval would have no impact on oil-sands production or greenhouse gas emissions because Canadian producers would find other avenues to market their crude.
In a study released Thursday, IHS CERA said that, if the Keystone XL does not proceed, U.S. Gulf Coast refiners would replace expected deliveries of diluted bitumen from Alberta with heavy oil from Venezuela, which has roughly the same emissions intensity as the Canadian crude.
And the Cambridge, Mass.-based consulting firm said Canadian producers would find other ways to market their crude, including a growing use of rail.
"Even if the Keystone XL pipeline does not move forward, we do not expect a material change in oil sands production growth," the study said.
The CERA study comes at a critical time in the highly polarized debate about Keystone XL. U.S. President Barack Obama has vowed to approve the cross-border project only if it does not add to greenhouse gas emissions. Climate change activists have focused on the Keystone project as a major threat to the planet, arguing it will spur production in the carbon-intensive oil sands.
In a draft environmental impact study released in March, the U.S. State Department also concluded the construction of pipeline would not result in higher GHG emissions because the oil would find other ways to market.
However, when they released the draft report, State Department officials said they would reassess that conclusion. If they stick to their initial assessment – one shared by IHS CERA – it will represent a major victory for TransCanada and loss for its environmentalist critics.
Environmentalists have pointed a series of analysts' reports that suggested the Keystone XL project is a key link to markets that will ensure Alberta producers receive world prices and hence would encourage investment.
The CERA economists assume other pipeline projects will proceed, including two highly controversial ones across British Columbia – the Northern Gateway to Kitimat and expansion of the TransMountain line Vancouver – as well as the just-announced Energy East line to New Brunswick.
If new pipelines lag oil-sands growth, rail capacity will "fill the gap," the economists say.
The CERA study points to the industry's growing reliance on rail to move crude from Alberta to markets. By April 2013, Western Canadian producers were shipping 150,000 barrels per day by rail, and that is expected to grow to 360,000 barrels per day by the end of 2014.
Economists Jackie Forrest and Aaron Brady said rail could be a long-term solution for oil-sands producers. They noted rail is particularly competitive with pipelines for oil sands bitumen because the thick crude has to be diluted with light hydrocarbons to be moved along a pipeline, which adds to the cost.
"For heavy oil sands crude specifically, in a scenario in which pipeline access was severely restricted, we would expect greater investment to make rail economics even more efficient approaching those of pipelines," they wrote.
The economist don't address the impact of tougher regulations that are already being imposed on railways in light of the disaster in Lac-Mégantic, Que., in which a train loaded with crude derailed and exploded, killing 47 people.
Already, Canadian and U.S. regulators are tightening rules, and there have been widespread concerns about the safety of the rail fleet used to transport crude. However, producers would have to invest heavily in rail capacity to move bitumen, including specialized heated rail cars.