Pipeline politics forcing producers to rely on rail, and other more expensive, incident-prone options to transport crude – by Jen Gerson (National Post – January 3, 2013)

The National Post is Canada’s second largest national paper.

As Alberta continues to feel the pinch of a deeply discounted bitumen price, it’s perhaps no surprise the provincial government and oil companies are looking for an alternative to politically contentious pipelines to get crude to market.

The provincial government said Monday it is considering spending $10-million to study building a new railway to deliver landlocked oil to an Alaska port.

If it did get built, there would be no shortage of irony: Fewer pipelines won’t keep oil in the ground; if anti-Keystone XL and Northern Gateway campaigns were successful, it would just force producers to rely on rail, and other more expensive, incident-prone options.

“Pipelines are the safest way to move crude. That’s the bottom line and that’s why most of it does move by pipeline today,”said Travis Davies, a spokesperson for the Canadian Association of Petroleum Producers. “Rail can be safe [but] you’re looking at volumes that aren’t as high as what’s moving through a pipeline everyday.”

Although pipelines are politically unpalatable, their safety record is massively better than every other option, including railways. Trains are currently seen as a complementary method to pipelines; something to ease the hurt as more pipeline infrastructure comes on line. But they are quickly becoming a far more expensive Plan B. The Alaska option isn’t the only one on the table; a rail link to the Port of Churchill is also under consideration.

“The option is what’s important and it’s a signal that when there’s a high market demand, producers will find creative ways to get to market,” Mr. Davies said.

A lack of pipeline infrastructure is cutting into the profits of oil companies and governments alike. More than a quarter of Alberta’s revenue is generated on resource royalties; the unexpectedly wide discount of its crude to the world market price is expected to cause a $3-billion deficit this year.

For the rest of this column, please go to the National Post website: http://news.nationalpost.com/2013/01/02/pipeline-politics-forcing-producers-to-rely-on-rail-to-transport-crude/

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