A train disaster that killed five people in Quebec promises to touch off debate over the safety of shipping crude oil by rail or pipelines such as TransCanada Corp. (TRP)’s Keystone XL. As authorities began investigating the explosion of refinery-bound tank cars hauled by Montreal, Maine & Atlantic Railway Ltd., Quebec’s Green Party demanded stricter regulations and an energy industry association predicted tough scrutiny ahead for rail carriers.
“People think rail is costless until something like this happens,” said John Stephenson, fund manager with First Asset Investment Management Inc., said from Toronto, where he helps manage C$2.70 billion ($2.65 billion). “This is another data point that shows how much costlier and riskier rail is compared to pipelines and will probably move Canada closer to having an energy strategy.”
The July 6 accident forced the evacuation of 2,000 near the town of Lac-Megantic as Montreal, Maine & Atlantic moved oil to Irving Oil Corp.’s Saint John refinery in New Brunswick. The cargo was part of Canadian producers’ growing use of rail amid tight pipeline capacity.
“It’s been a real shame that a lot of the public and especially the activists have pushed the public to sway so much from pipelines which are likely much, much safer over time,” said Arthur Salzer, chief executive officer of Northland Wealth Management, which oversees C$225 million. “It is going to be something that’s going to weigh on the public’s mind.”
Regulators’ Decisions
Canada shipped about C$73 billion ($69.3 billion) of oil exports last year, mainly to the U.S. With the industry waiting for a decision on the Keystone XL pipeline by President Barack Obama and from Canadian regulators on approval of Enbridge Inc. (ENB)’s Northern Gateway route through British Columbia, more shipments by rail are being planned.
“There will be some very hard questions that will be asked about why an unmanned, parked train moved,” said John Herron, president of trade group Atlantica Centre for Energy in Saint John, New Brunswick. He said that attention is “more than appropriate” with plans in the works to increase oil-offloading capacity on the eastern seaboard by 840,000 barrels a day.
Without the Keystone XL, designed to carry 830,000 barrels a day, rail shipments of Canadian crude would rise an additional 42 percent by 2017, according to an April 2 report by RBC Capital Markets. Cenvous Energy Inc. plans to boost rail shipments fivefold to 30,000 barrels a day by the end of 2014 to help reach coastal markets.
Pipeline Argument
“Pipeline companies will use this to point out the advantages and safety records of pipelines,” said Bob Schulz, a professor at the University of Calgary’s Haskayne School of Business, in an interview. “It gives those companies an additional point to support their argument.”
The Natural Resources Defense Council, a Washington-based environmental group, said it was inaccurate to assert that the Keystone XL pipeline was “something that can save us from oil on rail.”
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