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Will Rail Become the Next Target of Oil Protests?

A watchdog report said the Canadian government isn't doing enough to ensure the rail transport industry is monitored effectively. With rail one of the few viable alternatives to pipelines, the concern may add another layer of frustration to the North American energy debate.

"Transport Canada [the nation's transportation regulator] needs to address significant weaknesses in its oversight of safety management systems," Auditor General Michael Ferguson said.

More than 40 people died in July when a train carrying crude oil from North Dakota derailed in Lac-Megantic, Quebec. Canadian Prime Minister Stephen Harper said parts of Quebec looked like a "war zone" following the wreck.

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

There are some 27,000 miles of track in Canada carrying more than 50 percent of the goods transported by land. Oil production increases in North America, meanwhile, mean more petroleum products are delivered by rail because there aren't enough pipelines to keep up.

Railway operators in Canada were told in 2001 to take steps to better their safety policies through training and risk control strategies. Ferguson, however, said Transport Canada completed about a quarter of the work necessary and questioned the skills of the inspectors themselves.

Transport Canada's policies are "not robust enough to know that the companies are doing what they need to do to make sure their safety systems are working as they should be," he said.

Several Canadian oil companies, meanwhile, are pushing plans to expand pipeline infrastructure in the country and across the U.S. border. Apart from the Keystone XL pipeline, a TransCanada proposal, Enbridge wants to reverse the flow of its lines through Quebec to deliver as much as 300,000 barrels of oil per day to the east coast. That pipeline project has come up against opposition from Quebec leaders, who are already wary of oil developments following the July rail disaster in Lac-Megantic.

The Bakken crude oil formation, spread out over North Dakota, Montana and parts of Canada, should give up more than 1 million barrels of oil per day next month. Mike Palmer, senior president for distribution at Marathon Petroleum Corp., said the Sandpiper pipeline, planned by Enbridge, will provide more takeaway capacity for crude oil transportation from the Bakken play. Oil companies are relying more on rail, however, to address their immediate needs.

Related article: Do You Have An Investment in This "Golden Corridor"?

In the United States, Cynthia Quarterman, head of the federal Pipeline and Hazardous Materials Safety Administration, launched the so-called Bakken Blitz to address safety issues connected to rail shipments of Bakken crude. Now, it appears, the Canadian government may be forced to mull similar action.

What that means for the midstream crude oil sector is unclear. What it does do, however, is bring the midstream sector into the forefront of the public debate over North America's energy future. Advocates of pipeline deliveries say it's the most secure form of oil transit available, though pipeline accidents are far more severe in terms of spill volumes. Pipeline protests on both sides of the border have become commonplace. The industry may now have to get ahead of the rail debate before new frustrations impede their tracks.

By. Daniel J. Graeber of Oilprice.com


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