WASHINGTON — Because trains offer flexibility that fixed pipelines can’t match, the trend of moving oil by rail is here to stay, an energy executive told industry leaders and analysts Monday.
Eric Slifka, CEO of the oil logistics firm Global Partners LP., said rail is a better bet for oil producers hoping to move their crude to market and refiners looking for the cheapest supplies.
“Rail as a method of transport provides optionality and can be just as effective if not more effective than pipelines,” Slifka said at the Energy Information Administration’s annual summit in the nation’s capital. “If I were an owner of a refinery I would want to make sure…I had the utmost flexibility to purchase that product from the cheapest sources in the country.”
Slifka’s views make sense, given Global Partners’ deep investments in hauling crude by rail. Earlier this month the company announced plans to build a unit train terminal near some of the nation’s biggest refineries in Port Arthur. The Waltham, Mass.-based fuel shipper also hopes to expand its oil processing operations along the port of Albany.
Pipelines, whether newly proposed or built decades ago, may be a simple solution to moving product, but they can’t keep pace with the rapid change in U.S. energy markets today, Slifka said. Pipeline owners and shippers generally must enter long-term agreements based on today’s map of production and markets, without any real guarantee it will stick.
“You’re making an enormous bet to sign a 10- or 15-year pipeline contract,” Slifka said. “That’s an enormous commitment.”
Slifka allowed that rail may not be a “panacea.” But for some oil — particularly heavy Canadian crude — he sad it still may be the best option.
While official D.C. debates the Keystone XL pipeline proposed to transport oil sands crude from Alberta to Cushing, Okla., energy companies are increasingly turning to rail to take advantage of the steep discounts on those Canadian supplies.
Another path: TransCanada explores oil by rail amid Keystone XL stall
The sticky and viscous bitumen that is harvested from Canada’s oil sands generally must be thinned with a diluent before it can flow through pipelines as “diluted bitumen” or “dilbit.” By contrast, Slifka noted, “we can take pure heavy crude oil, put it in a heated rail car . . . and move it directly.”
Slifka downplayed concerns about the safety of flammable oil rumbling across U.S. train tracks. Pipelines are generally viewed as less risky — with a smaller risk of human casualties from accidents.
Read more: Pipelines safer than trains and trucks
But Slifka noted that any spills from oil-by-rail-car accidents can involve just a few tankers — potentially releasing less crude than could be emptied from a single stretch of damaged pipeline.
“Despite skepticism,” he insisted, “rail may actually be the safest mode for transportation of crude.”
U.S. regulators could propose new requirements for oil tankers by the end of the year, as oil companies, rail car manufacturers and railroads debate how far to go beyond industry standards
adopted voluntarily three years ago.
Influence game: Special interests shape railroad safety rules
Slifka suggested the compelling interests in oil-by-rail will find a solution.
“This is big enough that all the parties involved are going to want to make sure that products — crude, NGLs, other liquids — can be moved safely through the system,” he said. “That may take an investment, but I think all parties are prepared to make that investment. there just are way too many interested parties here for a deal to not come together.”