Wednesday, July 10, 2013

Oil transportation by rail under review

The deadly fire sparked by the derailment of a Montreal, Maine & Atlantic Railway train is now raising questions over the transportation of oil within Canada. Sadly, this accident is the fourth freight-train accident under investigation involving crude-oil shipments since the beginning of this year. However, as the 6th largest producer of oil, Canada’s economy depends on this important commodity for trade. Safety concerns and questions on training in dangerous good handling and transport are now being raised in the aftermath of the Lac-Megantic, Quebec disaster.

The Canadian Railway Association has long promoted the cost effectiveness of oil transportation by rail over pipeline. In fact, rail shipments of oil have greatly increased over the years. According to Statistics Canada and the Canadian Association of Petroleum Procedures, rail shipments of oil in Canada have increased from about 6,000 carloads in 2009 to an estimated 14,000 this year.

Industry experts note that even if all the current pipeline projects were to be granted government approval, there would still not be enough capacity. In fact, national oil production would exceed pipeline capacity by one million barrels a day by 2025 and even then that oil would still need to find a way to reach the coasts. In a recent research note, RBC Capital Markets noted that if the US decides not to expand the controversial Keystone project, Canadian oil shipments by rail could increase another 42% by 2017.

Transport Canada, the regulatory authority over Canada’s railroads, noted that there are 101 train inspectors across Canada and 35 inspectors focused solely on the transportation of dangerous goods. The authority also noted plans to hire additional inspectors. Another concern is that it appears the amount of oil being transported through municipalities and provinces is not shared. This information seems to be held tightly by each railroad company. And finally, while still under investigation, the president and CEO of the company that owns the train that derailed and exploded in Quebec indicated an employee failed to set the brakes. Also, the chairman of the Montreal, Maine and Atlantic Railway commented the train’s air brakes were released because firefighters turned off the engine when they extinguished a small onboard fire, possibly caused by a leaking fuel line, hours before the derailment.

Lots of finger-pointing is underway as investigation of the accident gets underway. Regardless of the results, it is likely regulations will tighten for railroads in Canada. The US is probably watching with keen interest and could also follow suit and impose regulations as well – particularly as cross-border activity continues to increase between the two countries.