New regulations designed to increase the safety of transporting crude oil by rail could mean heightened scrutiny on oil coming from Canada's oil sands. The February 25 rule issued by the U.S. Department of Transportation called for all crude shipped by rail to be tested and properly classified. This would have the effect of ensuring that highly flammable crude oil is carried in safer rail cars, which would theoretically reduce the chances of a major spill or explosion.
The rule may adversely impact Canadian oil sands, as they could be reclassified from the "Group III" designation to a much stricter "Group I" or "Group II," reserved for more dangerous and toxic substances. This would require tank-cars to have stronger standards, potentially raising costs for oil that has up to now been shipped by lighter rail cars. However, some oil sands companies maintain that if the bitumen is not diluted with lighter forms of oil, they can avoid regulation because it would count as a separate product and wouldn't trigger the rule.
Related Article: Oil Train Derailments Reaching Crisis Point
Canada is currently shipping more than 200,000 barrels of oil sands by rail. That number is set to more than double to 500,000 by the end of 2014. Federal investigators recently concluded that the train that derailed outside of Pittsburgh on February 13 and spilled 3,500 to 12,000 gallons of oil was in fact carrying heavy crude from Canada. The series of train crashes has provided fodder for both oil sands supporters and detractors. Supporters argue that building more pipeline capacity would reduce the occurrence of these incidents, while environmentalists point to these events as evidence that oil sands are inherently more dangerous.
By Charles Kennedy of Oilprice.com
Charles is a writer for Oilprice.com More