Scrutiny over crude-by-rail gathered steam in 2013 in shadow of Lac Megantic

CALGARY – Crude oil moved along Canadian railway lines in unprecedented volumes in 2013 as delays in building new pipelines caused oil companies, clamouring to reach the most lucrative markets, to seek out alternative paths.

The crude-by-rail trend had been gathering steam quietly in recent years. But after the disaster in Lac Megantic, Que., it could no longer fly under the radar.

On July 6, an unattended train laden with 7.6 million litres of volatile crude barrelled into the town, setting off an inferno that killed 47 people.

Beefed up safety measures have been announced since then, but there will likely be more to come in 2014 as formal investigations into what happened in Lac Megantic unfold. The effect of those changes on the economics of crude-by-rail remains to be seen.

“A year ago I didn’t even know we moved oil by rail, and I follow the industry fairly closely,” said Greenpeace climate campaigner Keith Stewart, who started delving into the issue in February.

When news of Lac Megantic broke, Greenpeace had been working on a campaign to make the public aware that crude moves by rail — and that the practice is risky, Stewart said.

“We no longer had to explain either of those things.”

In 2011, around 68,000 carloads of fuel oils and crude petroleum were moving along Canadian rail lines, according to Statistics Canada. In 2012, that rose to nearly 113,000. Between January and September of 2013 — the most recent data available — some 118,000 carloads had already been moved.

The Association of American Railroads estimates 400,000 crude carloads will move in the U.S. in 2013, up from 234,000 in 2012 and just 9,500 in 2008.

In the aftermath of Lac Megantic, Ottawa introduced rules for trains carrying dangerous goods, such as ensuring trains are properly secured, aren’t left unattended on main line tracks and are staffed by crews of at least two.

Since then, there have also been new rules introduced on how dangerous goods are labelled and how cities, through which the trains pass, are informed.

“It has been a collaborative effort,” said Michael Bourque, head of the Railway Association of Canada.

Bourque said safety is the paramount concern.

“It is extremely disruptive to have an accident. It takes equipment out of service. It takes the line out of service. It takes management and other workers away from more productive pursuits,” he said.

“It can have enormous cost, and so safety is something that you can’t trade off for efficiency.”

Among the changes the railway association has called for is the replacement of older tank cars, which have long been criticized because their hulls are easily breached in an accident, with stronger ones.

“We want to aggressively phase out the older ones at least for service of flammable liquids. It doesn’t mean that they can’t be used for other things, but they would be phased out very quickly,” said Bourque.

Some of the older cars — which ordinarily would have a lifespan of 50 years — could be cleaned out and used to transport other goods.

“There are some practical questions about how quickly it can be implemented, given the backlog of orders for rail tank cars,” said Ken Peel, a Toronto lawyer who specializes in transportation.

“I don’t think that the costs themselves would be a basis for not making change and I think both U.S. and Canadian regulators are likely to be making rules and stiffer standards given the broad consensus that they’re seeing.”

Both pipeline and rail industry associations say their product gets to its destination safely more than 99.9 per cent of the time.

Many oil executives have said that while they consider both modes of transport safe for crude transport, but pipelines are the preferred means in the long run, with rail playing a complementary role.

On a November investor webcast, executives with pipeline giant TransCanada Corp. stressed the importance of building new pipelines to get oilsands crude out of Alberta to market.

“We’ve seen an increase in rail movement, which has put public safety at risk,” CEO Russ Girling said.

TransCanada (TSX:TRP) has been seeking U.S. approval to build its controversial Keystone XL pipeline for more than five years and expects a decision some time in 2014. The U.S. environmental movement has rallied against that pipeline, which would enable oilsands crude to reach Texas refiners.

Without adequate market access, oil producers are getting less money for their oil, Alex Pourbaix, president of energy and oil pipelines, told the webcast.

“However, producers obviously are not standing still,” he said.

“With delays in getting our (U.S.) Presidential Permit, rail is increasingly filling the gap represented … and it will continue to do so until projects like Keystone XL are built.”

By the end of 2015, Pourbaix said, there will be more than 800,000 barrels per day of rail loading capacity in Alberta — nearly the size of Keystone XL, if it’s built. That’s double what it is today.

A draft environmental impact statement by the State Department in March cited growth in crude-by-rail in its determination that Keystone XL alone would not affect the pace of oilsands development.

But it’s important to keep growth in crude-by-rail in perspective, said Bourque, noting only about three per cent of the oil transported in North America moves by train.

Unlike the regulatory process for pipelines, there’s no formal forum for Canadians to have a say about increasing carloads of crude passing through their communities. Greenpeace’s Stewart said that’s likely to move citizens to take action, such as blockading rail lines.

Stewart agrees the older rail cars must be phased out “rapidly,” but he’d like to see a host of other regulatory changes as well.

Unit trains — more than 100 cars, each filled with hundreds of barrels of crude, linked together in one train — are too dangerous and shouldn’t be allowed, he said.

“The consequences of when something goes wrong are so much greater for unit trains than when you’ve got four or five carloads together.”

He urged Canadians must work to make sure nothing like Lac Megantic happens again.

“This is a major threat to community safety, to our environment and it’s something we can greatly reduce the chances of this ever happening again and we should,” he said.

“And my concern is that as the memory of that tragedy begins to fade, nothing will change.”