Killing Keystone Seen as Risking More Oil Spills by Rail

Photographer: Daniel Acker/Bloomberg

Three sections of pipe sit on the ground during construction of the Gulf Coast Project pipeline in Atoka, Oklahoma, on March 11, 2013. The Gulf Coast Project, a 485-mile crude oil pipeline being constructed by TransCanada Corp., is part of the Keystone XL Pipeline Project and will run from Cushing, Oklahoma to Nederland, Texas. Close

Three sections of pipe sit on the ground during construction of the Gulf Coast Project... Read More

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Photographer: Daniel Acker/Bloomberg

Three sections of pipe sit on the ground during construction of the Gulf Coast Project pipeline in Atoka, Oklahoma, on March 11, 2013. The Gulf Coast Project, a 485-mile crude oil pipeline being constructed by TransCanada Corp., is part of the Keystone XL Pipeline Project and will run from Cushing, Oklahoma to Nederland, Texas.

(Corrects name of Association of American Railroads in 11th paragraph.)

A rejection of the Keystone XL pipeline by President Barack Obama would push more of Canada’s $73 billion oil exports onto trains, which register almost three times more spills than pipelines.

The March 29 rupture of an Exxon Mobil Corp (XOM). oil pipeline in Mayflower, Arkansas, provided the latest evidence for opponents citing the risk of environmental contamination in their efforts to scuttle the Keystone XL project, an almost 2,000-mile pipeline linking Alberta’s oil sands with the world’s largest refining market on the U.S. Gulf Coast. The alternative, hauling crude by rail, may be worse, said Charles Ebinger, director of the Brookings Institution’s energy security initiative.

A U.S. denial of Keystone XL this year would “undoubtedly” result in more oil spills by trains, Ebinger said in a phone interview. Trains’ higher accident rate comes mainly from leaking rail car equipment, spill records show.

“The evidence is so overwhelming that railroads are far less safe than pipelines, that it would be a serious mistake to use these recent spills to say that Keystone is unsafe,” he said. Brookings is a Washington-based nonprofit that says it supports economic and social welfare and a strong American democracy.

The U.S. State Department, which has jurisdiction over TransCanada Corp’s (TRP) $5.3 billion pipeline project because it crosses an international border, is expected to make a recommendation to Obama by September.

Buffett Benefit

Shipping more supplies by rail would lead to higher costs for oil producers because train shipments are more expensive than pipelines. Warren Buffett’s Burlington Northern Santa Fe LLC (BNI) is among U.S. and Canadian railroads that stand to benefit should Obama reject the pipeline.

As oil supplies build in both the U.S. and Canada, producers have turned increasingly to rail as they wait for pipelines to carry their crude to market. A debate over the safety of pipelines versus trains has been reignited by the Exxon spill and two railroad spills the same week, said Tony Hatch, an independent rail analyst based in New York.

Two Canadian Pacific Railway Ltd (CP). train car derailments, on March 27 in Minnesota and April 3 in Ontario, spilled an estimated total of 757 barrels of oil.

Without Keystone, designed to carry 830,000 barrels a day of oil, shipments of Canadian crude by rail would rise an additional 42 percent by 2017, according to RBC Capital Markets.

‘Unintended Consequence’

“One of the unintended consequences of delaying Keystone XL is that more oil has been getting to markets in Canada and the United States using rail, truck and water-borne tankers,” Shawn Howard, a spokesman for TransCanada, said in an e-mail. “None of those methods of transportation are as safe as moving it by pipelines,” he said.

Railways suffer spills 2.7 times more often than pipelines, according to the Washington-based Association of American Railroads. The U.S. State Department, citing a 2012 study from the free-market Manhattan Institute, says trains spill 33 times more than pipelines. The railroad association calls that report “seriously flawed.”

Pipeline spills are typically four times larger than rail releases, according to Holly Arthur, a spokeswoman for the railroad industry group. While both Canadian Pacific spills were related to derailments, 95 percent of U.S. spills result from problems with valves or fittings, she said.

Comparing Records

Comparing the safety record of railroads and pipelines is difficult, and both deliver more than 99 percent of products without incident. U.S. pipelines carried 474.6 billion gallons of crude and petroleum products in 2012 and reported 2.3 million gallons spilled, an effective rate of 0.0005 percent, according to John Stoody, spokesman for the Association of Oil Pipelines.

Over the entire decade ending with 2012, railroads hauled 11.2 billion gallons of crude with 95,256 gallons spilled, the majority from just one 2008 accident in Oklahoma that accounted for 81,103 gallons, according to the rail association.

Trains and pipelines can both move crude safely, according to Ed Greenberg, a spokesman for Canadian Pacific (CP). The rail operator moved four times more crude in 2012 than a year earlier.

“Both pipeline and rail are highly regulated,” Greenberg said in a phone interview.

Pegasus Leak

Exxon’s Pegasus pipeline spill in Arkansas late last month leaked 3,500 to 5,000 barrels of crude, according to the U.S. Department of Transportation. Exxon transports more than 2.7 million barrels a day of oil and refined products, Alan Jeffers, an Exxon spokesman, said in a phone interview.

The pipeline-versus-rail safety debate began heating up after the State Department, in its March 1 environmental assessment of Keystone XL, said a denial of the pipeline would not block oil-sands development. Instead, most of the entire line’s capacity of 830,000 barrels a day would shift onto rail, according to the report.

“Rail has historically had a higher safety incident rate than pipelines, in terms of both fire/explosion and injuries,” the State Department said. The analysis cited the 2012 Manhattan Institute report which found that from 2005 through 2009, the spill rate for railroads hauling hazardous materials was 33 times higher than for pipelines.

Not accounted for in the Manhattan study is the different requirements for rail and pipelines in reporting spills, said Arthur, the railroad association spokeswoman. While pipelines don’t have to report any spill under 5 gallons, trains must. The study also undercounts the volume of other hazardous materials hauled by rail, inflating the spill rate.

Both Safe

When those measures are incorporated, the incident rate for railroads drops to 2.7 times that of pipelines, she said.

“Both are safe modes of moving crude,” Arthur said in a phone interview.

As modern oilfield technologies unlock vast crude resources across North America, from Pennsylvania to North Dakota, a lack of pipelines to carry all the new supplies has pushed more shipments onto rail. Train shipments of U.S. oil rose to 6.5 billion gallons in 2012, 21.4 percent more than the amount carried in 2009, according to the rail association.

As much as 425,000 barrels a day of Canadian crude will move on trains by 2017 if Keystone XL is denied, 3.7 times the current estimated 115,000 barrels a day that accounts for 5 percent of western Canada’s production, analysts at RBC Capital Markets estimated in an April 3 report. Rail may move 300,000 barrels if the pipeline is approved.

Rail has become an important -- and permanent -- part of the network moving oil to market, Darren Peers, managing director at NWQ Investment Management Co. in Los Angeles, said in a phone interview.

“To the extent that we don’t approve pipelines, rail is going to become an even more critical solution. And that isn’t the most economical solution, nor is it the safest,” Peers said.

To contact the reporters on this story: Rebecca Penty in Calgary at rpenty@bloomberg.net; Jim Efstathiou Jr. in New York at jefstathiou@bloomberg.net

To contact the editors responsible for this story: Steve Geimann at sgeimann@bloomberg.net; Susan Warren at susanwarren@bloomberg.net

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