TransCanada 'eyes rail shipments'

Options: TransCanada CEO Russ Girling mulls shipping crude by rail

Pipeline operator TransCanada is in talks with customers about shipping Canadian crude to the US by rail as an alternative to its Keystone XL pipeline project that has been mired in political delays, according to a report.

"We are absolutely considering a rail option," chief executive Russ Girling told Reuters. "Our customers have needed to wait for several years, so we're in discussions now with them over the rail option."

The comments are the first to confirm growing speculation that TransCanada might use more costly and controversial railway shipments as a stopgap alternative to the Keystone XL pipeline, whose approval has been delayed by the US government.

Girling said the firm was exploring shipping crude by rail from Hardisty in Canada, the main storage and pipeline hub, to Steele City, Nebraska, where it would flow into an existing pipeline to the Gulf refining hub.

TransCanada has waited more than five years for the Obama administration to make a decision on the $5.4 billion project, which would carry up to 830,000 barrels per day of crude from the oil sands of northern Alberta to the US Gulf Coast.

While the project has received a mostly favourable environmental report, the State Department last month delayed a decision beyond the mid-term elections in November while a legal dispute over the line's route in Nebraska is settled.

The pipeline has drawn sharp criticism from environmental groups who say it will fuel more production of Canada's energy-intensive oil sands. But the oil-by-rail movement has also come under scrutiny after a series of explosive derailments, including the one in Lac-Megantic, Quebec, last summer that killed 47.

"It's an irony that the adamant opposition of environmental organisations and others against oil sands-derived crude have actually created a phenomenal opportunity for rail to pick up the slack," said David McColl, an analyst at Morningstar.

Canadian crude-by-rail exports jumped to 146,047 bpd in the last quarter of 2013, an 83% year-on-year surge, according to the National Energy Board.

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