TRANSPORT:

Deadly derailment adds heat to Keystone XL, crude-by-rail debates

The fatal weekend derailment of a 73-car oil train in Quebec is adding the heat of disaster politics to the volatile Keystone XL debate, as environmentalists expand their case against fossil-fuel infrastructure beyond pitting rail against pipelines and industry observers wonder if the continental boom in crude on the tracks will slow down in the wake of the incident.

Canadian officials yesterday estimated that explosions triggered by the train's unmooring in Lac-Mégantic, Quebec, killed at least 13 of the town's 6,000 residents with dozens still missing. The oil-powered blasts appeared to give KXL supporters an opening to promote the superior record of pipelines compared with rail, but the pitfalls of wading into a still-unfolding calamity -- and undercutting an increasingly valuable mode of shipping crude from tight U.S. oil plays -- proved equally palpable.

"For the most part, transportation by rail is safe," Michael Whatley, executive vice president of the industry-backed and pro-KXL Consumer Energy Alliance, said in an interview. "We don't need an overreaction that's going to restrict rail access ... I don't want to punch the safety record of rails, because they've got a great record, but pipelines are safest."

Diana Furchtgott-Roth, a senior fellow at the conservative Manhattan Institute for Policy Research and author of a June study that found oil and gas releases are more than twice as common from trains as from pipelines, embraced the KXL argument one day after the derailment in a commentary for Canada's Globe and Mail newspaper. Had the light oil behind the disaster come via pipeline from North Dakota's Bakken Shale play, rather than the Montreal, Maine & Atlantic Railway, "families in Lac-Mégantic would not be grieving for lost loved ones today," Furchtgott-Roth wrote.

Greens leapt to slam Furchtgott-Roth, whose think tank has taken donations from oil and gas industry players. "Working for oil company front groups is one thing, but using the tragedy still unfolding in Quebec to argue for more oil pipelines is a whole new level of low," blogger Kevin Grandia wrote yesterday on the climate activist site DeSmogBlog.

Notably, both Whatley and environmentalists such as 350.org's Daniel Kessler said the rush to view Lac-Mégantic as proof of oil-by-rail's inferiority to pipelines amounted to a false choice. Just as the pro-KXL advocate avowed that both methods are largely reliable, adding that "we've got to have rail" to ship lower-volume and more inaccessible Bakken hauls, the anti-KXL activist described all "new major" construction to expand fossil-fuel development as unacceptable if the planet is to avoid a climate change tipping point.

"The Keystone Principle must come into effect" to keep the planet within what scientists have said is a manageable range of temperature increase due to global warming, Kessler said via email. "For policy-makers that means no incentives or plans for new dirty infrastructure, including new pipelines or rail. We will take this fight forward on multiple levels."

With Canadian authorities in the first phase of their investigation, however, green groups largely limited their public comments to sympathy for the victims and broad opposition to further oil, gas and coal development. "This tragedy strengthens our resolve to move beyond fossil fuels," Sierra Club Executive Director Michael Brune said in a statement.

That the unmoored railcars in Lac-Mégantic were carrying light Bakken oil is more relevant to the KXL controversy than it might appear. The State Department concluded in a March environmental analysis of the $5.3 billion Alberta-to-Gulf Coast pipeline that, if KXL were not approved by President Obama, the resulting climate impact would prove minimal since the blossoming of Bakken railways sets the stage for a similar flourishing of trains as a transportation alternative for Canadian oil sands crude.

Environmentalists have worked furiously for the past four months to undercut that argument, most recently in a formal request for State to reconsider its economic logic (E&ENews PM, June 27).

Rougher on the rails?

The rail industry, while sidestepping any comment on the inquiry into the derailment's cause, echoed Whatley's emphasis on the benefits of shipping oil by both modes. "Rail complements pipeline in the movement of crude oil," Canadian National Railway Co. spokesman Mark Hallman said via email yesterday. "Both modes are safe and the risk of accidental releases of product is extremely low for both modes of transport, with no appreciable difference considering both spill frequency and size."

The International Energy Agency reported in May that although trains were six times more likely to spill crude between 2004 and 2012, the total amount of oil released by pipelines was three times higher over that same period (Greenwire, May 14).

Energy economics consultant Ian Goodman, who has worked for greens against KXL as well as electric utilities, pointed to that tendency toward larger leaks from pipelines as he predicted that Lac-Mégantic would resonate for all crude shippers. He said the fatalities could prompt a reconsideration of new plans involving older pipes, such as KXL sponsor TransCanada Corp.'s bid to convert an aging gas line to run oil sands crude through Quebec.

"Once people start thinking about all these creative possibilities of repurposing infrastructure, the flip side of all that is putting one risk on top of another," Goodman said. "It avoids getting new rights of way, but if you're putting a lot of infrastructure on top of another, one problem can lead to another problem."

Wall Street remains split on the ability of rail to muscle into the oil sands crude transportation market on the same scale as pipelines. Goldman Sachs reported last month that "rail will help fill some of the gap" if KXL is rejected, but not all, yet analysts at Raymond James yesterday touted the potential for incremental crude-by-rail growth to help oil sands producers "sidestep" uncertainty over the Keystone XL pipeline.

The analysts predicted 300,000 barrels per day (bpd) of U.S.-bound crude-by-rail capacity in Alberta by the end of 2015, up from 60,000 bpd in 2012 -- an apparent downshift from the State Department's estimate of 200,000 bpd of oil sands' crude-by-rail transport in 2013, though the report also noted that "delays in pipeline infrastructure could put an upward bias to [crude-by-rail] volumes."

When asked about the impact of the disaster in Lac-Mégantic, Cory Garcia of Raymond James stood by the projection, although he said "it's too early to predict the degree of backlash from this tragedy."

"We find it difficult to envision a scenario by which crude by rail movements would be significantly hampered -- at least on a widespread basis," he said in an email, citing figures from the American Association of Railroads, an industry trade group, that indicate more than 99.9 percent of hazardous materials shipments reach their destinations safely via rail.

Some transportation analysts declined to speculate on the repercussions of the derailment, noting that the official investigation is ongoing. If criminal activity was involved, it could somewhat ease the fallout for rail operators.

But experts agreed that Canadian regulators and their U.S. counterparts could soon clamp down on an industry that often escapes close scrutiny. The added oversight could curb the incremental crude-by-rail growth forecast by Raymond James, albeit not completely, according to Fadel Gheit, managing director and senior analyst covering the oil and gas sector at Oppenheimer & Co. Inc.

"[Crude by rail] will grow," he said. "But government regulators will take a second look at it and will tighten the regulation. That will make people think twice before they jump in head-first and assume that rail is safe."

Regulatory outlook

In the United States, rail operators must complete a safety assessment before transporting any hazardous materials, subject to the review of the Federal Railroad Administration and other federal agencies.

Transport Canada has imposed separate safety standards for the transportation ofdangerous goods, which includes flammable liquids such as crude oil and gasoline.

The government department also requires rail operators to prepare emergency response assistance plans for moving extremely dangerous substances. That regulation traces its origins to a 1979 CP train derailment and explosion in Mississauga that forced the evacuation of more than 200,000 people due to the toxicity of chemicals in some of the freight train's 106 cars.

It is unclear if the latest derailment will spawn similar regulatory efforts, but Canada's transport minister, Denis Lebel, said he would "not hesitate to take immediate action should any safety deficiencies be identified" in a statement yesterday.