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John Daly

John Daly

Dr. John C.K. Daly is the chief analyst for Oilprice.com, Dr. Daly received his Ph.D. in 1986 from the School of Slavonic and East European…

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As Canadian Oil Transit by Rail Increases, Safety Regulations Fall Behind

In light of a recent spate of railway accidents involving dangerous cargoes, Canada is revising its laws regarding railways transporting hazardous material, including oil.

The new regulations will require railways to provide yearly aggregate information to municipalities about the nature and volume of dangerous goods that are moved through their territory and inform local officials about any significant changes.

On 6 July, a Montreal, Maine & Atlantic train carrying 72 tank cars filled with oil exploded after its brakes apparently failed, sending it rolling into the small Quebec town of Lac-Megantic, where it derailed and subsequently exploded, igniting a conflagration that leveled the center of town and killed 47 people.

Related article: U.S. Regulators Start Oil-by-Rail Probe

Spurring the legislative reforms is the fact that the use of such trains has soared in recent years. According to the Railway Association of Canada, as late as 2009 Canadian railways moved just 500 carloads of crude oil, but that number has now soared to about 140,000 carloads annually. While currently only about three percent of Canadian crude is transported by rail, industry analysts predict that with the development of new energy deposits, including Alberta’s oil sands, combined with the stalled construction of new pipelines such as Keystone XL, railway carriage of oil products could rising as high as 25 percent within the next two decades. Rail companies currently disclose their cargo to emergency responders, but not to communities.

Clearly on the defensive in the wake of the Lac-Megantic tragedy, the Railway Association of Canada asserts that “99.9977” percent of all hazardous goods shipped by rail reach their destination without a release caused by a train accident, adding that the railway oil spillage rate is lower than for pipelines. Under the new regulations Canadian Class 1 railway companies, including CN and CP, will have to report that information every three months, while other companies will have to do so on an annual basis.

Canadian Transport Minister Lisa Raitt told journalists that the new rules are meant to help municipalities update their emergency response plans, commenting, “Local governments and first responders on the front line are keeping our communities safe. We want to make sure that these measures will support their work and their efforts, help them with risk assessments, emergency response planning and first responder training.”

Some in Parliament feel that the new regulations were insufficient. Opposition Liberal MP David McGuinty noted that while oil transported by rail in Canada had soared in the past several years, Transport Canada's spending on rail safety had not kept pace, commenting, "I don't know how we can make the magic of using the same amount of money, or smaller amounts of money, available to deal with safety, and fill that void by simply saying we're going to be good regulators." Raitt countered by cautioning about hastily implementing new regulations with investigations into the recent railway tragedies still open and while the government was waiting to hear back from a working group of union, industry and government representatives, telling Parliament, "Fundamental changes need to have time to be discussed."

Related article: Russia Takes Steps to Increase LNG Exports

In the wake of Ottawa’s political gridlock over revamping railway legislation, the fact remains that in both the short and long term increasing volumes of Canadian oil will be moved by rail. The latest project to upgrade Canadian rail facilities has been proposed by Calgary-based Torq Transloading Inc. which the month after Lac-Megantic issued a press release stating its intention to build a $100 million crude-by-rail terminal near Kerrobert in western Saskatchewan that could load two 120-car trains with heavy crude oil each day as well as store 500,000 barrels in tanks. According to its website, “Torq Transloading is a progressive company, focused on transloading oilfield fluids and materials from truck to rail, and rail to truck through the construction and operation of transloading facilities throughout Western Canada.” The new facility will more than quadruple Torq Transloading Inc.’s shipping output to 168,000 barrels a day when its planned Kerrobert rail terminal hits full production in autumn 2014.

In light of the fact that the estimates for cleaning up Lac-Megantic are now nearly $200 million, it may be time for Canadian rail companies to take the view that working closely with Ottawa on legislation to improve rail safety rather than opposing any and all such efforts may in fact make the most economic sense. In light of the projected volume increases of oil transport by rail, the Railway Association of Canada’s assertion of a “99.9977” safety record may yet come back to haunt the railroads.

By. John C.K. Daly of Oilprice.com

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