Pipeline Resistance To Remain Strong Despite Trainwreck

BMI View: The environmental argument against expanding Canada's oil pipeline network could weaken in face of rising frequency of rail accidents involving the transportation of crude oil and oil products. Nonetheless, the country's leading pipeline operators TransCanada and Enbridge would continue to face tough opposition particularly against proposed flagship projects Energy East and Northern Gateway, as public sentiment against the threat of oil spills from ruptured pipelines remains strong.

Proposed pipeline projects in Canada could gain traction following yet another oil-carrying rail accident. On October 19, CN Rail met with a train derailment involving nine cars transporting liquefied petroleum gas (LPG) and four cars carrying crude oil. This resulted in an explosion west of Edmonton.

It is the latest in the string of accidents that have hit Canada's rail sector. Canada's CTV News had detailed other significant derailment of trains carrying crude oil and oil products since May 2013:

  • Rail: Short-Term Solution To Move Exports
    Major Crude Export Capacity From Canada To The US (b/d)

BMI View: The environmental argument against expanding Canada's oil pipeline network could weaken in face of rising frequency of rail accidents involving the transportation of crude oil and oil products. Nonetheless, the country's leading pipeline operators TransCanada and Enbridge would continue to face tough opposition particularly against proposed flagship projects Energy East and Northern Gateway, as public sentiment against the threat of oil spills from ruptured pipelines remains strong.

Proposed pipeline projects in Canada could gain traction following yet another oil-carrying rail accident. On October 19, CN Rail met with a train derailment involving nine cars transporting liquefied petroleum gas (LPG) and four cars carrying crude oil. This resulted in an explosion west of Edmonton.

It is the latest in the string of accidents that have hit Canada's rail sector. Canada's CTV News had detailed other significant derailment of trains carrying crude oil and oil products since May 2013:

  • May 2013: More than 91,000 litres of oil was spilled as a result of the derailing of five cars in southern Saskatchewan;

  • July 2013: The derailment of an unmanned train carrying crude oil led to an explosion in Lac-Megantic, Quebec, causing one of the worst train accidents in Canada's history;

  • July 2013: Another derailment took place at the Alberta-Saskatchewan boundary that led to a diesel spill;

  • September 2013: CN Rail suffered another train derailment involving 17 cars in western Saskatchewan, some of which were carrying petroleum products.

Trainwreck Gives Pause To Anti-Pipeline Debate

Although not all of these accidents resulted in casualties, they could fuel a wider debate surrounding the safety of Canada's railway network and the wisdom of relying on rail to transport flammable petroleum products. The growth in Canada's crude oil production in recent years, thanks to oil sands output, has been supported by rail transportation in particular given strong environmental opposition to expanding the country's pipeline system.

The standstill in the progress of the Keystone XL pipeline, which would help facilitate the shipment of 800,000 barrels of crude oil per day (b/d) from Canada to the US Gulf Coast, has seen Canadian producers scramble to move oil to the US markets via rail. This has in turn seen crude-by-rail exports to the US rise from negligible volumes to 120,000b/d by 2012 according to Barclays Capital, a figure which the firm expects to increase to 200,000b/d in 2013 and 300,000b/d by 2014 ( see 'Crude-By-Rail Filling Export Capacity Gap', August 2).

Rail: Short-Term Solution To Move Exports
Major Crude Export Capacity From Canada To The US (b/d)

Most of these crude oil exports will have to move through the crude oil production heartland in western Canada. While growing attention on rail accidents involving oil transportation could increase pressure to improve Canada's railway networks, they also bring to light that the threat of oil spills is not restricted to crude oil pipeline transportation.

This could lead opponents against key crude oil pipeline projects - Northern Gateway connecting Alberta to British Columbia and Energy East connecting Alberta to New Brunswick - to rethink the environmental argument against the construction of these pipelines. While the scale of oil spills could be greater for pipelines than rail, it could be easier to impose environmental safeguards for pipelines as there are fewer parties involved to be held responsible for any accidents. Otherwise, there would be a need to step up regulation on Canada's rail industry to ensure that it can meet rising demand for oil transportation without compromising on the safety of these deliveries.

Long Battle Ahead

However, there remains a larger battle ahead for Canada's oil and gas pipeline operators to prove that pipelines are not necessarily a greater environmental hazard than railing crude. A rupture at TransCanada's Nova regional natural gas pipeline network, which took place on October 17, does not provide a supportive case for the safety credentials of pipelines. Meanwhile, the large crowd that turned up at the National Energy Board to prevent the regulator from approving Enbridge's plan to reverse Line 9 of its Ontario-Montreal line and to increase crude oil capacity from 240,000b/d to 300,000b/d shows that public sentiment against pipelines in eastern Canada remains strong despite the Lac-Megantic rail disaster in July 2013.

As such, we remain cautious about the prospect of TransCanada's Energy East and Enbridge's Northern Gateway projects materialising in the near future ( see 'No Promises For Energy East Pipeline', September 12; 'Government Closes Door On Northern Gateway', June 4).

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Sector: Oil & Gas, Infrastructure
Geography: Canada
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