TransCanada moving oil by rail not as simple as it seems

Strict new rules for rail cars may affect TransCanada's possible plans to move oil by train rather than through the Keystone XL pipeline, Federal Transport Minister Lisa Raitt says.

The prospect of moving that oilby train the Keystone XL pipeline would carry 800,000 barrels of Alberta bitumen a day to the U.S. Gulf Coastprompted questions during a media conference withRaitt, who was in Leipzig, Germany, on Thursday.

• TransCanada looks to ship oil to U.S. by rail amid Keystone XL delays

Raittsaid the number of rail cars that are safe to use may affect how much oil the company can actually carry.

"There is a limit to how many cars are available out there," she said.

"So if they are planning on increasing the capacity of the number of cars, I know they are going to have to adhere to the standards that we have put forth in January of this year, that's a given."

Yesterday,TransCanada Corp. CEORuss Girling said his company is in talks with customers about shipping Canadian crude to the United States by rail as an alternative to its delayed Keystone XL pipeline project.

"We are absolutely considering a rail option," Girling told Reuters during a news conference in New York.

"Our customers have needed to wait for several years, so we're in discussions now with them over the rail option."

New rules

The federal government amended its Transportation of Dangerous Goods regulations in January to require,among other things, strengthened construction for the new DOT 111 tank cars and better documentation for what they are carrying.

The move followed the devastating train derailment and explosion in Lac-Mgantic, Que., that killed 47 people and levelled the town's downtown core.

Last month,Raitt announced an accelerated plan to phase out tens of thousands of older tank cars used to transport oil and ethanol by rail.

Critics said it was unrealistic to attach the three-year deadline because there only a handful of tank car makers in North America and a huge boom in oil by rail shipments, with demand far outstripping supply.

Now a possible huge demand from TransCanada for more rail tanker cars and access to rail lines could make supply even tighter.

Raitt said she's not that worried.

'Too early' to know cost

"As long as it has the right tank cars, the right means of containment and [they] are abiding by the operating rules we've put in place ... I'm confident that like every other railway in Canada they will be operating in a safe manner," Raittsaid.

A spokesman for TransCanadasaid rail loading and unloading facilities "proximate to our existing infrastructure or our planned infrastructure" would be needed, and that market demand and ultimate destinations would determine where those would go.

"This requires modification of our current contractual relationships and thats basically what our customers have asked us to look at. It is too early to know exactly what it will cost or what all will be involved," Shawn Howard wrote in an email to CBC News.

"Some of our customers may have existing relationships in place with rail companies, while others do not. So it may involve the construction of some new loading and offloading facilities and that has to be determined. A typical unit train can move in the order of 100,000 [barrels per day]and new loading/unloading facilities are designed to accommodate multiple unit train movements on a daily basis."

'Foolish' not to consider alternative

TransCanada has mulled over using railin the past, but now the plan sounds more definite,said Andrew Leach, an energy and environmental economist at the University of Alberta.

"It's stronger language now," he said in interview with CBC News.

"You would be foolish at this point not to consider that alternative. You would be letting down your shareholders if you did not consider it."

Leach thinks that until now TransCanada has used the prospect of moving oil by rail as a way to pressure the U.S. government to make a decision on Keystone.

But now, he said, the troubled project has forced the pipeline company to lookseriously at other options.

"So you are seeing things like this where more people are looking to what is the next project or what is the alternative project in a much more formal way or a more realistic way,"Leach said.

Moving oil by rail is still a huge project.

Leach said TransCanada would probably have to construct some of its own rail lines along existing right-of-ways to get oil from the Canadian border to Cushing, Okla., where the southern leg of the Keystone pipeline has been built and is carrying oil south to the Gulf Coast.

Rail lines would be easier to get permission for than a pipeline, said Leach.

"They would need a permit to build a rail line, but it wouldn't be the same as trying to build a pipeline."