Keystone XL Pipeline
11:16 am
Tue December 17, 2013

U.S. oil producer relying on rail, not Keystone

Continental Resources, an Oklahoma-based company that’s one of the top producers of liquid petroleum products in the U.S., has cooled its enthusiasm for the Keystone XL pipeline.

Harold Hamm, chief executive of the oil producer, has said that his company’s booming operations in North Dakota’s Bakken field are relying on rail transport to move its product.

In a conversation with Reuters, when asked whether Keystone XL is still needed, Hamm said “not for our Bakken (crude oil). And is it needed for the industry? I don’t think so … not in the U.S.”

Continental’s lack of support for the pipeline shouldn’t have much, if any, effect on TransCanada’s ability to profit from Keystone XL. Most of the oil that would go through the pipeline would originate in Alberta.

Most of the pipeline’s route is in the United States. The path crosses the northwestern Great Plains states on its way to Nebraska, where connections can move the oil east or south to Cushing, Okla.

The southern leg of the Keystone XL project crosses Northeast Texas on its route from Oklahoma to the Texas Gulf Coast. That part of the pipeline has been completed and is expected to be commercially active within a month.

The northern part of the pipeline must receive approval from the U.S. State Department because it crosses an international border. The Obama administration has not issued a decision regarding the permit.

Meanwhile, rail has assumed an increasingly important role in U.S. oil transport.

“Rail has been a big factor and, you know, proven to be a very effective way,” Hamm said on Dec. 12. Continental now ships 90 percent of its crude oil by rail, Hamm told Reuters. Data from the American Association of Railroads project that about 400,000 carloads of crude will be transported this year – compared to 9,500 in 2008.

Environmental groups have opposed the Keystone XL pipeline, in large part because it would further the production of oil sands crude. The extraction process is carbon-intensive and costly ecologically.

Communities and landowners along the pipeline’s path have also raised concerns about the long-term integrity of the pipeline itself.

Yet, rail transport – such as that used by Continental to move its Bakken oil – carries its own risks. Train derailments of cars carrying crude oil in Alabama and Quebec resulted in disasters in 2013.

Continental’s stance on Keystone XL has changed according to the pipeline's perceived effect on Continental's business. Hamm lobbied against the project in 2009, citing concerns that the influx of Canadian crude would harm domestic producers.

But in 2010, Continental and other U.S. companies persuaded TransCanada to build a $140 million extension connecting the Bakken field to Keystone XL. Hamm told Reuters last week that Continental remains contracted to be a shipper on that line.

TransCanada projects that the northern leg of the 1,179-mile, $5.4-billion project should be operational two years after receiving approval from the U.S.