) announced that it was scrapping its plan to build a $2 billion
oil pipeline that could have ferried West Texas crude to refiners
The firm said that
), and other West Coast refiners were not interested in taking oil
from the proposed Freedom pipeline.
"At Kinder Morgan, we don't believe in the concept of build it and
they will come," said Mark Kissel, Kinder Morgan's West Region Gas
Pipelines President, in a statement. "We stated at the outset that
we would not move forward with the project without customer
support, and we did not receive enough interest for us to commit to
building the project at this time."
With the scrapping of Kinder Morgan's pipeline, and with the
Keystone XL pipeline approval still up in the air, rail has quietly
become a popular mode of oil transportation in North America --
especially as production has been overwhelming existing pipeline
capacities. In the first quarter of this year, a record 97,135
carloads of crude were shipped across the US, which was an
eye-popping 166% year-on-year increase.
A Canadian National rail unit in Chicago, Illinois. Source:
"There's no question rail is growing very rapidly by every single
company and part of it is because of some of the uncertainty with
the pipelines," said Valero Chairman and CEO Bill Klesse in a
recent call with investors, according to
In fact, while environmentalist continue with their fight to block
Keystone, many US refiners have already begun shipping crude from
the Canadian tar sands via rail. Valero, for example, applied for a
permit to build a rail project at its Benicia, California, refinery
that would allow it to obtain Canadian crude.
"We're talking about moving some of the lowest-priced crude on the
planet to our refineries," said Valero spokesman Bill Day,
according to Fuel Fix. "The reason is that there isn't the
infrastructure to move it in great quantities. So it's trading at a
discount, and it's not near markets where it's processed."
Rail is more flexible, Day added, and also "significantly faster
than moving by pipeline." Rail cars achieve top speeds of around 50
to 60 mph while pipelines typically ferry crude at 10 to 20 mph.
"The flexibility that rail provides energy producers is the ability
to quickly access a broad range of markets at reasonable terms and
is a good complement to traditional pipeline offerings," explained
Canadian Pacific Railways
) spokesman Ed Greenberg to
Refineries in the Northeast are also making heavy use of railcars
to receive North American crude. At the start of 2013, Phillips 66
said it had reached a five-year deal with
Global Partners LP
(GLP) to transport some 50,000 barrels of Bakken crude each day to
its Bayway, NJ, refinery so as to cut down its reliance on foreign
"Rail is the fastest way to provide increased export capacity out
of the Bakken, creating a near-term solution to transportation
bottlenecks and the resulting crude oil pricing differentials,"
said Stephen Wuori
(ENB) president of liquids pipelines. His company is also
developing a $68 million unit-train facility to rail in Bakken
crude to refineries in Philadelphia.
Since late 2011, NuStar Asphalt, a joint venture of
(NS) and private equity firm Lindsay Goldberg, has also been
transporting Western Canadian heavy crude to its two East Coast
The boom in rail transportation of crude has helped rail companies
to cushion the blow caused by declining coal shipments.
"In the coal market, railways have certainly proven their ability
to move enormous quantities of that commodity," Jack Galloway,
president of Canopy Prospecting, told
Environment & Energy Publishing
. "So they said [to refiners], 'Hey, look us over carefully. See if
we make sense.'"
Railway companies like Canadian Pacific Railway, Burlington
Northern Santa Fe, which is owned by
(UNP) have received a boost from the growing demand for Bakken
But the rail company most poised for growth is
Canadian National Railway
(CNI), which owns Athabasca Northern Railway, the key and sole link
to the Athabasca oil sands in Alberta.
JPMorgan said in a recent report that Canadian National Railway was
poised for strong growth and upgraded the stock to Neutral from
Underweight, upping its price target to $110 from $96.
"Due to its greater reach North into the oil sands and South to US
Gulf Coast refineries, CNI has one of the strongest crude by rail
growth stories over the next several years," wrote JPMorgan analyst