crude-oil-1433

Crude on the Move

Over the Rails and Through the Pipes

By | Updated May 13, 2014

Striking oil in North America is easy these days. What’s tricky is getting the stuff to customers. The U.S. is poised to surpass Saudi Arabia as the world’s largest producer and Canada’s recoverable reserves are the third-biggest globally. But existing pipelines don’t have the capacity or don’t go to the right places, and building more has proven politically challenging. That means record volumes of oil are traveling by rail, adding a contentious new element to the fierce debate about the safety and environmental impact of the region’s energy renaissance.

The Situation

Environmental concerns lie at the heart of new efforts to block permits for rail terminals where oil would be delivered to refineries. Safety takes center stage in accidents involving oil trains. On Jan. 7, a train carrying what the authorities called “dangerous goods”  jumped the rails and caught fire in New Brunswick, Canada. The accident came a week after a train explosion in North Dakota that was the fourth  major North American derailment in six months by trains transporting crude. Nobody was hurt in either derailment but oil-train mishaps have been deadly. On July 6, a runaway train hauling 72 carloads of crude derailed in Lac-Megantic, Quebec, causing an explosion that killed 47 people, incinerated 30 buildings and transformed the downtown into a smoldering hellscape. The investigation that followed raised questions about the safety of trains operated by a single engineer. It also questioned the soundness of the tanker cars involved in the crash. The rail-terminal conflicts and the derailment, Canada’s deadliest in more than a century, came as U.S. President Barack Obama weighed whether to approve the $5.4 billion Keystone XL pipeline linking the two countries. Able to move 830,000 barrels of oil per day, a third of daily exports to the U.S. from Canadian oilfields, Keystone would ease the demands on North America’s railway network. Many environmental groups oppose the Keystone pipeline on grounds that it could encourage use of oil-sands crude, which produces comparatively high levels of greenhouse gases while risking spills that could contaminate groundwater supplies.

The Background

Shipments of oil by rail increased 17 times faster than crude production in the U.S. last year, according to figures compiled by Bloomberg. That has been a boon to the railroads, which are contending with a precipitous drop in demand for coal, their biggest cargo, as utilities switch to cheaper natural gas. Fracking and other advanced techniques of oil extraction pulled crude from the ground in places like North Dakota where pipeline capacity is limited, meaning rail is often the only way to deliver the crude to refineries. The Association of American Railroads says the amount of oil hauled by rail in the U.S. rose more than 20-fold from 2009 to 2012, when 6.5 billion gallons were carried by train; it continues to rise. Crude-by-rail volumes are surging but they’re nowhere close to closing the gap.

The Argument

The rail and pipeline industries each claim a safety advantage over the other and marshal supporting statistics. Railroads have had more mishaps while more oil has been spilled from pipelines. The Lac-Megantic accident shows one danger presented by rail that’s usually absent with pipelines: Because train tracks often pass through cities and towns, the danger to life and property is more acute. In neither mode of transport, though, are accidents common. “Over 99.9 percent of deliveries make it to the end user without incident,” said Cindy Schild, a senior manager at the American Petroleum Institute. Environmentalists dislike both, arguing that train and pipeline accidents demonstrate the desirability of reducing the use of fossil fuels.

The Reference Shelf

  • A Bloomberg Businessweek article on why railroads have the upper hand in moving North American crude.
  • The Association of American Railroads’ crude-by-rail primer.
  • A Manhattan Institute researcher argues that pipelines are the safest way to transport petroleum.
  • A Natural Resources Defense Council analyst makes the case in congressional testimony that Keystone XL, rather than rail, will stimulate oil-sands expansion.

(First published Nov. 20, 2013)

To contact the writer of this QuickTake:

Tim Catts in New York at tcatts1@bloomberg.net

 

To contact the editor responsible for this QuickTake:

Jonathan I. Landman at jlandman4@bloomberg.net