Trains roll from Canada to Gulf to fill void left by failed Keystone pipeline

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A Canadian railroad carrying millions of barrels of oil to Gulf refineries is hurtling full steam ahead through the Obama administration's block of the Keystone pipeline.

The amount of oil Canadian Pacific Railways carries from the Bakken Formation down through the heartland has surged 2,500 percent since 2009, to 8.5 million barrels per year from just 325,000. The company expects to move 45 million barrels per year within the decade.

“We are responding to a growing demand,” Ed Greenberg, a spokesman for Canadian Pacific told “There has been unprecedented growth in the energy industry.”

The Calgary-based railroad is one of two that carries oil down from Canada's tar sands, but Canadian Pacific also carries thousands of barrels per day to the Gulf from North Dakota's booming Bakken Formation oil fields.

Experts estimate shipping by rail instead of pipeline adds anywhere from $5 to $10 to the price of a barrel, not to mention the high-capacity, 24-7 flow a pipeline affords. Rep. Fred Upton, (R-Mich.), chairman of the House Energy and Commerce Committee, says the explosive growth of oil delivery by rail underscores the missed opportunity of the Keystone XL Pipeline, a Canada-to-Texas oil pipeline that became bogged down by environmental concerns and was ultimately tabled by the Obama administration and the Democrat-controlled Senate.

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    "We need to be doing all we can to develop our resources, particularly now, with rising gasoline prices and the threat of supply disruptions overseas," Upton told "Most observers acknowledge that rail transport is the best option we currently have to get this oil down to the refineries -- but the Keystone XL pipeline presents us with a better alternative."

    Supporters of the pipeline, which the Obama administration plans to consider again after the 2012 election, say it would not only lower the price of a barrel of oil, but that it would also provide jobs. TransCanada, the company seeking to build the pipeline, has estimated it would generate 130,000 jobs, a number endorsed by Republican supporters of the pipeline. But Democrats cite a study by Cornell University that places the number at just 5,000 jobs.

    With the pipeline in limbo, trains are the next-best way to move the oil south to the thirsty refineries on the Texas and Louisiana coasts, Michael Ervin, a petroleum industry analyst based in Calgary, Alberta, Canada, told

    “The use of rail as a short-term solution to pipeline capacity limitations was a likely approach either with or without the additional production,” Ervin said. “It is more a matter of a lack of pipeline capacity, which in turn is depressing domestic crude oil prices of all types in the Midwest and Canada as well.”

    Oil companies are investing their own money in the older mode of transport, said Tony Hatch, a New York-based transportation and railroad industry analyst, noting that Hess Oil is among the latest companies to buy its own rail tankers. He said even if the pipeline ultimately gets built, rail transport will be a piece of the puzzle.

    “The markets are ready for the oil now," said Tony Hatch, a New York-based transportation and railroad industry analyst. "It’s clear that they are investing in rail even when and if a pipeline is built."