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Rail seen as alternative to pipeline for moving oil

In this Feb. 8 photo, Secretary of State John Kerry, right, speaks with reporters during a news conference with Canadian Foreign Minister John Baird at the State Department in Washington. The State Department on Friday raised no major objections to the Keystone XL oil pipeline and said other options to get the oil from Canada to U.S. Gulf Coast refineries are worse for climate change. But the latest environmental review stops short of recommending whether the project should be approved. (AP Photo/J. Scot...

Even if foes of the Keystone XL pipeline block it, companies seeking to get Canada's oil sands to U.S. and world markets could travel the old-fashioned way: by rail.

While TransCanada has been trying to obtain a U.S. permit to build the 875-mile northern leg of its Keystone XL pipeline, Canadian and U.S. railroad companies have been busy installing new track and loading facilities to carry the oil sands crude from northern Alberta to refineries in the United States and Canada.

Rail shipments of Canadian crude oil sands are on track to quadruple this year. Producers and refiners are scrambling to buy their own tank cars in order to lower the cost and increase the certainty of transport. Industry sources said that there is an 18- to 24-month waiting period for new tank cars in Canada.

The rail expansion is a central issue in the debate over whether the State Department should grant a permit for the northern leg of the Keystone XL pipeline, which would run from Hardisty, Alberta, to Steele City, Neb.

On Friday, the State Department issued a draft environmental impact statement on the pipeline that said that denying the Keystone XL permit would have no impact on climate change because oil sands development would go ahead anyway using different pipelines or rail to get to market.

"Because of the flexibility of rail delivery points, once loaded onto trains the crude oil could be delivered to refineries, terminals, and/or port facilities throughout North America, including the Gulf Coast area," the State Department report said.

That would undercut an argument used by Keystone XL opponents, who say that blocking the pipeline would create a transportation bottleneck and slow down development of the oil sands, a major source of greenhouse gas emissions. Environmentalists have not targeted rail terminals the way they have the Keystone XL. In an email, spokesman Daniel Kessler wrote that rail shipment accounted for only 0.69 percent of western Canada's oil supply in 2011.

"Transporting oil sands by rail grabs headlines but will likely remain a very small percentage of total shipped oil sands," Kessler wrote.

In January, Peters & Co., a Canadian research and investment advisory firm specializing in the oil and gas sector, estimated that this year Canadian railroads would nearly triple oil deliveries from 70,000 barrels a day to 200,000 barrels a day, which would be more than a quarter of the capacity of the Keystone XL.