As the smoke clears (literally) in Lac-Megantic, Quebec, after a runaway train packed with crude oil tankers crashed July 6, the oil industry is coming to terms with a business that has perhaps grown too far too fast.
The Lac-Megantic accident is shining an unwelcome spotlight on the lack of regulatory oversight on oil by rail in both the US and Canada. The fact that the rail cars (which were being pulled by the Montreal, Maine & Atlantic Railway) that crashed and exploded were considered unfit to carry hazardous materials sharpens that focus.
Getting landlocked crude out of newer fields in North Dakota, Canada and other far flung parts of North America has become an obsession with producers, traders and refiners, the latter group looking lustfully at the cheaper feedstock.
The oil rush has changed the face of rail in North America. In a country where passenger and cargo-bearing rail was largely replaced by the car and large 18-wheel trucks half a century ago, the speed with which new railroad lines, railcars and loading facilities are being built is simply astonishing.
Today around one million barrels per day of crude oil is moved via rail across the US and Canada. To put that into perspective, it equates to more than the total daily output of the UK North Sea, which fell below 1.0m b/d last year. Or to roughly four VLCC’s worth of crude oil every week. In other words, it is a lot of oil.
And this is set to grow. In the US alone, crude by rail shipments are expected to reach to near 1.10 million b/d at the end of 2014, up from about 718,000 b/d this month and about 156,000 b/d in January of 2012, according to Bentek Energy, a unit of Platts.
The Railway Association of Canada estimated that as many as 140,000 carloads of crude, totaling about 91 million barrels, will be shipped on Canadian tracks this year, compared with 500 carloads, or about 325,000 barrels, in 2009.
But the headlong dive into crude by rail may have just been stopped short by the Lac-Megantic incident. And, just as the Exxon Valdez oil spill in Alaska in 1989 spelled the end of single-hull oil tankers coming to the US (and banned them worldwide in 2010), the Lac-Megantic crash would spell the end of using DOT-111A railcars. And it could herald a new rash of regulation for the rail industry.
A US National Transportation Safety Board study in 2012 said that 69% of tank cars are DOT-111A. In Canada, these are known as CTX-111A, and comprise 80% of the fleet, according to Canada Transportation Safety Board’s chief investigator Donald Ross.
Ross said that changes as a result of the MM&A investigation could include thicker steel or shields for the tank cars. The American NTSB had already changed the specifications of DOT-111 from October 2011 to include thicker shells and a ½ inch thick head shield. But there is no rule on retrofitting existing cars, which have a long service life.
Like the single-hull tanker post-Exxon Valdez, DOT-111As could be the next casualty of the oil rush in North America.
But there are other issues raising their ugly heads, including the state of some of the railroad tracks around both countries. While the oil industry is spending billions on railcars and loading/unloading facilities, who is spending the money to maintain and upgrade the railroads?
As Avrom Shtern, a rail-transport policy representative with Montreal-based Green Coalition, said in Platts Oilgram News July 9, Canadian government’s budget cuts have left the rail industry to police itself. “That’s unacceptable. You can’t just write rules and expect the railways to police themselves,” he said.
Also, questions are rife over the capital adequacy of smaller gathering and distribution companies such as World Fuel, which owned the oil on board the MM&A train. Will they have the financial stability to survive a lawsuit?
The crash was only a few days ago, so most of these questions will be answered over time. Crude by rail has come a long way in a short time. But the Quebec accident could slow the pace and the way in which the industry grows going forward, in both Canada and the US.
(Correction note: This post has been changed to reflect the fact that the Montreal, Maine & Atlantic Railway were pulling the cars that crashed. It did not own them.)
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