Crude-Derailment Risk Rises as Trains Haul More Oil

Photographer: Tom Bateman/The Canadian Press via AP Photo

This aerial photo shows derailed train cars burning in Plaster Rock, New Brunswick, Canada, on Jan. 8, 2014. Close

This aerial photo shows derailed train cars burning in Plaster Rock, New Brunswick,... Read More

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Photographer: Tom Bateman/The Canadian Press via AP Photo

This aerial photo shows derailed train cars burning in Plaster Rock, New Brunswick, Canada, on Jan. 8, 2014.

People living near rail lines in the U.S. and Canada could be at increasing risk as trains transport more and more of the output of the continent’s energy boom.

The danger was underscored this week when a Canadian National Railway Co. (CNR) train hauling propane and crude caught fire en route to a New Brunswick refinery, nine days after the crash of an oil-laden train in North Dakota. They were the latest in a spate of explosive accidents drawing attention to the perils of oil in tank cars on North America’s tracks.

“We’re going to see more disasters, more chances taken,” said John Stephenson, a portfolio manager at First Asset Investment Management Inc. in Toronto who helps oversee C$2.7 billion ($2.49 billion), including shares in pipeline and rail companies. “You’re going to be putting more trains on the track, running at all hours of the day to keep up with demand.”

Train shipments of crude pumped in Western Canada and the U.S. Midwest are projected to double to 2 million barrels a day in the next year, up from 1 million a day in the first nine months of 2013. U.S. government data show that as oil output has surged, so have crude-related train incidents, which were up 12-fold from 2010 to 2013.

Crude on the Move

Even if TransCanada Corp. (TRP)’s Keystone XL pipeline is completed, hundreds of thousands of barrels will need to travel on rail lines to get to refineries and ports. The U.S. is on target to be the world’s largest oil producer by 2015.

“There’s no question that exposure drives risk,” said Grady Cothen, former deputy associate administrator for safety standards at the U.S. Federal Railroad Administration. “Something will need to be done.”

Weighing Keystone

As U.S. and Canadian output has risen -- hitting about 11.6 millions barrels a day last year -- trains have shouldered transport duties because there aren’t enough pipelines out of major producing regions.

The concern of some lawmakers and public safety advocates is that the huge amounts of crude coming on line will expose people living near tracks to ever more danger. The U.S. will be pumping 9.5 million barrels a day in 2016, according to the U.S. Energy Information Administration. Canada’s output will reach 3.8 million barrels a day, according to the Canadian Association of Petroleum Producers.

If trains haul more, it’s only logical there will be a risk of more accidents, Cothen said. The recent rail explosions “are events that we wouldn’t have seen as frequently without the ramping up in service.”

‘Trivial’ Difference

Data from the Pipeline and Hazardous Materials Safety Administration, an arm of the U.S. Department of Transportation, show that crude-by-rail incidents climbed to 108 last year from 9 in 2010. They ranged from a fire after the partial derailment of a 90-car train operated by a unit of Genessee & Wyoming Inc. in Aliceville, Alabama, to the discharge of 1/8th of a gallon (470 milliliters) of oil from a Consolidated Rail Corp. train in Camden, New Jersey.

Railroad trade groups have defended rail transport as safe, saying well over 99 percent of all oil shipments are delivered without incident. Malcolm Cairns, a transportation consultant in Brighton, Ontario, and a former director of business research at Canadian Pacific Railway Ltd. (CP), said both railroads and pipelines “are safe means” and that any disputes about the relative difference is “trivial.”

The U.S. is weighing whether to give TransCanada the go-ahead for the $5.4 billion Keystone project, which would connect Canada’s oil sands to Gulf Coast refineries. It would ship about 830,000 barrels a day, and the earliest that any of the other proposed export pipelines could be built in Canada is 2018.

Public Nuisance

Questions about the safety of petroleum on the tracks were raised even before 47 people were killed when rail cars carrying oil from North Dakota exploded in Lac-Megantic, Quebec, in July. It was the worst Canadian rail accident in a century.

There have been other incidents, none deadly, including the one in New Brunswick on Jan. 7, which forced the evacuation of 150 residents in a small town along the tracks. On Dec. 30, fire engulfed tank cars loaded with oil on a Burlington Northern Santa Fe LLC train after a collision west of Fargo, North Dakota, forcing more than 2,000 residents flee the fumes.

After the Lac-Megantic disaster, U.S. and Canadian regulators said they had begun conducting spot checks of the labeling of crude types in tank cars, and the U.S. is considering new rules on railcar construction. Chicago Aldermen Edward Burke and Matthew O’Shea proposed banning the model of tank car most frequently used to haul crude -- called the DOT-111 -- from tracks in the city. The proposed ordinance, introduced Dec. 11, would declare the car a public nuisance.

Tougher Standards

The DOT-111 accounts for about 69 percent of the U.S. tank car fleet, according to the National Transportation Safety Board. NTSB Chairwoman Deborah Hersman said in a 2012 letter to regulators that the model had a “high incidence of tank failures during accidents.”

The Lac-Megantic crash, which caused the derailment of 63 cars including DOT-111s, prompted investigators at Canada’s Transportation Safety Board to include a review of the design in their probe. The Association of American Railroads urged the Pipeline and Hazardous Materials Safety Administration to require the cars to be retrofitted to meet tougher standards or phased out.

The safety board’s early findings are that the brakes applied weren’t strong enough to hold the train in place and that the crude on board should have been labeled as highly dangerous.

‘Utmost Importance’

Trains delivered 11 percent of all the crude produced in the U.S. as of the end of September, about 784,000 barrels a day, up from almost nothing four years ago, according to the Association of American Railroads. Shipments of crude by rail in Canada surged last year to 140,000 carloads, or about 230,000 barrels a day, from about 500 carloads in 2009, according to the Railway Association of Canada.

“The safety of our operations and of the communities through which we transport energy products is of the utmost importance,” said Patricia Reilly, a senior vice president at AAR, in a statement. “The rail industry is continuously learning and making improvements along the way so that what we move and where we move is as safe as possible. That’s why in light of the increased amount of crude oil and other flammable liquids moving by rail, we implemented enhanced operating procedures -- including steps such as lower speed limits and train securement rules.”

Rail companies should do more and reroute oil traffic away from urban areas, said Fred Millar, an environmental consultant in Arlington, Virginia, and former director of nuclear and hazardous materials transportation at Washington-based Friends of the Earth.

“Right now the railroads are in a situation where they can send a transcontinental tide of crude oil from northern Alberta and North Dakota across the whole continent and they can go through every single North American Great Lakes city,” he said. “And there’s not a national government that can say ‘boo’ about putting an enormous number of people unnecessarily at risk.”

To contact the reporters on this story: Rebecca Penty in Calgary at rpenty@bloomberg.net; Tim Catts in New York at tcatts1@bloomberg.net

To contact the editors responsible for this story: Susan Warren at susanwarren@bloomberg.net; Ed Dufner at edufner@bloomberg.net

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