TransCanada Corporation (USA) (TRP), Canadian National Railway (USA) (CNI) – Everything You Need to Know About Keystone XL: Why Railroads Care

This companies are also the only game in town in case producers and refiners find it attractive to move oil sands to refineries on the West; but if there is any intention to move East, then other companies need to get involved. Currently, Burlington Northern has a dual line agreement with CSX Corporation (NYSE:CSX) to move crude from the Bakken to Albany, New York, where oil is then placed on barges, and is either shipped to refineries on the Atlantic shore or in the St. Lawrence seaway.

If Keystone XL gets built
It’s very possible that the added capacity would slightly increase the price for Canadian oil sands while taking a small sliver out of the premium for Venezuelan and Mexican crude. As the price differential between these two shrinks, it makes deliveries by rail more difficult.

Again, rail doesn’t have to beat the pipeline; it has to beat prices on foreign sources. If it can deliver, then there’s no reason that it can’t share in the oil sands party.

If Keystone XL gets rejected, it more than likely creates a better opportunity for rail to compete. Lack of takeaway capacity could potentially hurt prices for Western Canadian Select, which would also help rail companies. If prices can stay within a range where that $30 premium to move via rail is still competitive against other heavy crude sources in the Gulf Coast, then rail certainly has a shot to make an impact.

What a Fool Believes
Rail is an interesting option for crude oil, and it certainly can act as an emergency release valve when production in a new oil play doesn’t have the adequate takeaway capacity to support production. One thing that doesn’t make producers happy, though, is the lower prices they have to take in order to make it competitive in the open market. If Canadian oil sands producers need to consistently keep a $30 discount to other foreign heavy crudes, it’s going to be awfully hard to make a buck. Check back at Fool.com to learn what the Keystone XL pipeline means to our friendly northern neighbors.

The article Everything You Need to Know About Keystone XL: Why Railroads Care originally appeared on Fool.com is written by Tyler Crowe.

Fool contributor Tyler Crowe has no position in any stocks mentioned. You can follow him at Fool.com under the handle TMFDirtyBird, on Google +, or on Twitter, @TylerCroweFool. The Motley Fool recommends Berkshire Hathaway and Canadian National Railway. The Motley Fool owns shares of Berkshire Hathaway.

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