Canada’s train disaster could inspire new US regulations

The deadly derailment of a train heaving crude across Canada should inspire U.S. regulators to take a close look at existing federal mandates governing rail transport of oil, a former Obama administration energy adviser said.

Dozens of people are presumed to have been killed in the fiery July 6 disaster, which has highlighted the huge growth in using trains to transport oil across North America and underscored the risks of carrying crude from wells to refineries.

Jason Bordoff, a former White House energy adviser who now heads Columbia University’s Center on Global Energy Policy, said the incident should be a wake-up call for federal regulators, as ever more oil travels by trains.

“Whenever something changes this quickly, it’s worth, I think, federal and state regulators stepping back and just making sure the existing rules that we have in place shave are adequate to deal with the changes on the ground,” Bordoff said on Platts Energy Week. “This is just happening in a very quick time.”

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The main reason for the rapid transformation in oil transportation is a surge in North American crude production, particularly from dense rock formations in the U.S. that may be far from the lattice of pipelines built decades ago. Now, roughly three quarters of oil extracted from the Bakken formation in North Dakota and Montana is being moved by rail to refineries along the Gulf Coast, eastern Canada and other locations. For rail companies, the new crude load has effectively replaced declining coal shipments.

And that train transport is here to stay — even if new pipelines are approved and built. Although there’s a run on crude cars now and rail transport is generally more expensive, trains offer rerouting flexibility and the ability to shift capacity to match demand in ways that installed pipelines can never match.

With rail, “there’s more flexibility (and) it’s less capital intensive, because you don’t need to undergo as deep environmental reviews,” Bordoff told Platts. “Rail is going to be a significant way we move oil around North America for the foreseeable future. and so we need to make sure all the regulations for tank cars, for example, are where they need to be to accommodate this increase.”

Pipelines may have a slight edge over rail when it comes to safely transporting crude. In a recent analysis of Transportation Department data, Manhattan Institute senior fellow Diana Furchtgott-Roth concluded that for every billion ton-miles traveled, there was less than one incident involving pipelines, compared with 19.95 incidents for trains. Pipelines may spill more oil — both overall and per incident — but train accidents have a higher risk of injuries and deaths.

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An average of 6.6 million gallons of petroleum products were released accidentally from pipelines each year from 2005 to 2009, according to Furchtgott-Roth’s analysis. During the same period road transportation spilled an average 477,600 gallons a year and trains spilled 83,800 gallons.

Energy experts and industry analysts predict changes are on the horizon.

Analysts at Moody’s last week said the Lac-Megantic disaster will limit the near-term growth of petroleum freight, hiking costs and tightening restrictions for North American oil producers trying to get their crude to market. The accident could delay the development of new rail routes and will surely inspire new regulations in the U.S. and Canada.

“Past rail accidents and catastrophic oil spills have led to strong and costly new regulations,” Moody’s said in a report to clients.