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The Associated Press September 7, 2011, 1:11PM ET

Study: Tar sands oil will reach US sans pipeline

Canadian tar sands oil will almost certainly move to U.S. refineries even if a $7 billion pipeline from western Canada to the Gulf Coast fails to achieve federal approval, a U.S. State Department consultant's report says.

Lexington, Mass.-based EnSys Energy & Systems Inc.'s report said if the proposed 1,980-mile-long Keystone XL pipeline or a similar pipeline project is halted, it would be "difficult to visualize a situation" that would prevent the Canadian oil from making its way to U.S. refineries by rail, barge or trucks.

The study commissioned by the State Department estimated that rail alone could haul 1.25 million barrels of Canadian crude daily by 2030, or nearly twice the amount of the proposed pipeline.

"U.S. and Canadian rail sectors have a history of expanding to meet clearly defined demand increases," according to the study, which cited North Dakota's booming oil patch as a recent example.

The analysis was done at the request of the State Department, which determined last month that the proposed pipeline project would not have significant environmental impacts along its U.S. route.

The Keystone XL pipeline, a project of TransCanada Corp. of Calgary, would carry crude extracted from tar sands near Hardisty to the Gulf Coast via Montana, South Dakota, Nebraska, Kansas, Oklahoma and Texas. A spur also is planned to tap into North Dakota's oil patch.

The pipeline could move about 700,000 barrels of oil daily, doubling the capacity of TransCanada's existing pipeline from western Canada that began moving crude last year to U.S. refineries.

Several environmental groups have pushed the State Department to reject TransCanada's Keystone XL application, first submitted in 2008. They say the pipeline would speed the expansion of oil sands extraction to a rate that could exacerbate global warming.

Wayde Schafer, a North Dakota spokesman for the Sierra Club, said his group is against the development and shipment of the tar sands oil.

"Whether it comes from rail or pipeline, it is not a good fuel to be part of our energy mix -- tar sands oil is one of the dirtiest fuels as far as CO2 emissions," he said. "Moving oil or tar sands oil is an extremely risky proposition and there is no good option to move it. Do you want your leg broken or your arm broken? Neither is good."

State Department spokeswoman Wendy Nassmacher said a final decision on the proposed project is slated to be made by the end of the year. The review will consider if the pipeline is in the national interest. Part of the criteria in determining that will be "what will happen if the pipeline isn't built," she said.

The State Department's environmental review of the Keystone XL said rail transport is riskier than pipelines when moving liquids. The review also said trains would create more emissions and noise than the pipeline and would result in higher energy use and transportation costs. Communities along the rail route also would be impacted by traffic delays at crossings.

But, according to the agency's report, "The maximum release of oil from a train accident would likely be less than the maximum possible release from the proposed project."

TransCanada spokesman Shawn Howard said moving crude through pipelines are safer and cheaper than rail.

"For every incident there is on a pipeline, there are 50 incidents involving rail," he said.

Pipelines also are more efficient and have lesser impacts on vehicle traffic, Howard said.

"To ship 700,000 barrels a day, you would need a train 25 miles long every day," he said.

Railroads already are seeing increases in demand to ship Canadian and domestic crude.

Association of American Railroads statistics show that U.S. crude shipments have tripled in the past decade, led by tankers coming from North Dakota's rich Bakken and Three Forks formations. North Dakota producers are increasingly shipping barrels to more profitable markets not served by pipelines.

Holly Arthur, a spokeswoman for the Association of American Railroads, said rail shipments of crude increased from 13,732 carloads in 2000 to 45,750 last year. Each carload is about 30,000 gallons of oil.

Though oil tankers represent less than 2 percent of all rail freight, "crude shipments are really picking up steam," she said.

Canadian Pacific spokesman Mike LoVecchio said energy-related products are a growth market for the railroad in the Marcellus Shale region in Pennsylvania, North Dakota and Canada. He said 25 percent of 400,000 carloads moved shipped in and out of Alberta last year was related to the oil industry, including crude, fuels and equipment.

The railroad has the capacity at present to keep pace with additional oil sands production, he said.

"We are approaching customers and they are approaching us to extend our services to move their product," he said.

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