Pipeline or rail: Canada's oil shipments will double


The question of how to move oil safely – so brutally highlighted by the disaster in Lac-Mégantic – is only going to get bigger in Canada.

That’s because the river of oil moving out of western Canada is set to double over the next two decades.

And the industry is looking in all directions to get the land-locked oil to world markets.

Oil production in the west – currently in excess of 3 million barrels a day – will grow to more than 6 million barrels a day by 2030, according to the Canadian Association of Petroleum Producers.

That’s prompting a scramble to figure out ways to move the oil whether it’s tweaking existing pipelines or building new ones or shipping crude by rail, unheard just a few years ago.

With transportation comes risk, as the Quebec town of Lac-Mégantic so tragically discovered early Saturday, when 72 rail cars carrying crude oil from North Dakota’s Bakken basin to Irving Oil’s refinery in New Brunswick, derailed and then exploded, destroying the downtown core.

But pipelines aren’t risk-free either, as a billion-dollar spill at an Enbridge oil pipeline in Kalamazoo, Mich., in 2010 testifies.

The only truly safe option would be to stop shipping oil – a strategy that even environmental groups acknowledge isn’t realistic, but doesn’t excuse complacency.

“We know we’re not going to get off oil tomorrow,” said Keith Stewart, climate and energy campaigner for Greenpeace.

“While we are reducing our addiction to oil, we need to make the existing transport system as safe as possible,” said Stewart.

Hunter Harrison, chief executive officer of Canadian Pacific Railway acknowledges that complete safety is unachievable.

“Look, are we never going to have an accident? No. It’s not the case,” Harrison told reporters in May.

“I don’t know of any mode of transportation, whether it’s pipeline, air or rail that has not had accidents. And God forbid, there will be accidents in the future that we have to deal with the best we can.”

“The problem is that the record gets represented by sound bites,” he said. “If someone is really interested, you need to sit down and have a thorough conversation or discussion.”

While oil and pipelines are often regarded as western issues, looming developments are bringing it squarely into Ontario.

Enbridge’s Line 9 oil pipeline – which runs clear through Greater Toronto – is seeking to boost its flow and carry western oil eastward to market.

Meanwhile, TransCanada Corp. wants to convert part of its main natural gas pipeline through Northern Ontario to carry western crude to Montreal.

That’s only part of the picture, as the oil, rail and pipeline industries seek ways to carry oil east, south and west to markets. And each proposal has attracted strenuous opposition.

Here’s a sketch of Canada’s current options:

Pipelines:

Existing pipelines can carry 3.67 million barrels a day of crude from western Canada, according to the Canadian Association of Petroleum Producers.

But plans on the drawing board, or in the approval process, will add about 3 million barrels a day more.

Among them:

Enbridge’s Northern Gateway, a 525,000 barrel a day line that would carry Alberta crude across B.C. to Kitimat. The B.C. government opposes the current proposal. Its fate is in the hands of the National Energy Board (NEB).

TransCanada’s Keystone XL would carry 830,000 barrels a day south to the U.S. and ultimately to the Gulf Coast. U.S. President Barack Obama is expected to make a final decision on the project later this year.

Kinder Morgan plans to twin its Trans Mountain pipeline from Edmonton to the west coast, boosting capacity by 590,000 barrels a day.

TransCanada’s Energy East project would carry oil instead of natural gas eastward on its main line through Northern Ontario. It would take up to 850,000 barrels a day. New Brunswick’s premier David Alward is an enthusiastic backer of moving western oil all the way to the east coast.

The Line 9 reversal. Enbridge has been using the line to carry 240,000 barrels of imported oil west to Sarnia. It has now reversed the flow of the western portion of the line, to carry western oil to a refinery in Nanticoke. It now proposes boosting the flow to 300,000 barrels a day, and carrying the oil east to Montreal.

All those are new projects that would require new pipeline, or would significantly alter the use of existing lines.

Oil pipelines aren’t accident-free – although there’s been nothing as horrendous to the Lac-Mégantic disaster.

But it will cost Enbridge about $1 billion to clean up a 2010 spill near Kalamazoo, Mich. The U.S. National Transportation Safety Board blasted the company’s handling of the rupture, which continued to gush for 17 hours, likening it to the Keystone cops.

Exxon Mobil also suffered a black eye in March when a ruptured pipeline spewed thousands of barrels of heavy crude from Canada into Mayflower, Arkansas.

Canada’s pipeline industry boasts that its network transported more than 1.5 trillion litres of oil and refined products between 2002 and 2011, while spilling only 8.3 million litres – a delivery record of better than 99.9 per cent.

Railways:

Given the limited capacity of pipelines, railroads have been jumping into the business of moving crude oil – with the amounts shipped almost tripling in just over the past two years.

In 2011, CN moved approximately 5,000 carloads of crude oil, which jumped to 30,000 carloads in North America last year, and it is likely to double this year.

In 2009, CP shipped just 500 carloads of crude oil, but expects it will move 70,000 carloads this year and possibly 140,000 by 2015.

Their spills, while more numerous, tend to be smaller, and the rail industry also claims a safe delivery record of better than 99.9 per cent.

But they carry far less oil than pipelines: Only 2 per cent of Canada’s $73 billion of oil exports moved by rail, according to a note from Desjardins Securities.

At CP’s annual meeting in May in Toronto, chief executive officer Hunter Harrison argued that crude oil will likely be shipped by both rail and pipelines.

“Rails provide some flexibility that pipelines don’t. I happen to think there’s enough for both,” he said.

“We are proceeding cautiously. We’re not going out to spend capital to build infrastructure that will last 40 or 45 years, when we’re not so sure about the markets for five or six (years.)”

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