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Vol. 18, No. 31 Week of August 04, 2013
Providing coverage of Bakken oil and gas

Crude trains keep rolling

Canada’s two big railroads and oil producers are pressing ahead with plans to increase the use steel-wheels-on-steel-rails to move crude even as the small Quebec town of Lac-Megantic reels from what can go wrong with a crude-laden train.

Canadian Pacific Railway, despite four derailments of trains carrying oil or petroleum products this year, posted a record second-quarter profit, crediting long-haul oil shipments for much of the gain, while Canadian National Railway cited oil transport as a key to its profits for the quarter.

But, acknowledging the public and political demand for action, both have tightened their safety procedures for trains carrying hazardous materials, staying one jump ahead of the Canadian government and its transportation regulators.

Jane O’Hagan, chief marketing officer for CP Rail, said the movement of oil will “form a larger part” of her company’s business, which is expected to account for 70,000 carloads this year and double that in 2015.

“Crude-by-rail remains a complementary and important supply chain option for producers, refiners and transloaders looking to benefit from the flexibility of moving any type of crude to any North American market,” she said.

CN Rail Chief Executive Officer Claude Mongeau told analysts that his company hopes to learn as much as it can from the Quebec disaster, even though it was not involved in any way.

“I have initiated a fact-based and rigorous assessment, with a view to further improve our solid safety record,” he said.

Crude cargoes up 150%

CN Rail showed the clear benefits of the rapid growth in rail shipments, reporting crude cargoes were up 150 percent over a year ago, generating almost C$100 million.

CN executives said they are in talks with large oil producers and refiners, mainly in Alberta, about building new terminals that can more efficiently transfer crude to large unit trains.

Mongeau said some terminals are being built to allow the transport of heavy oil without adding diluents that allows the crude to move through pipelines.

CP Rail’s Chief Operating Officer Keith Creel, retaliating against those who suggested the company’s ongoing layoffs to reduce its payroll from 19,505 a year ago to 15,500 by the end of this year probably reduced the safety component, said the root causes of derailment were “not even remotely connected” to trimming manpower or capital budgets.

“We have made our inspection standards more rigid and we have actually increased our capital investment,” he said.

Immediate changes demanded

The Transportation Safety Board, TSB, of Canada has sent two letters to Transport Canada calling for immediate changes to prevent trains being left unattended, while imposing more rigorous standards for the number of hand brakes required to park freight trains.

While the regulators are taking swift action on the safety front the TSB is also conducting exhaustive tests to determine the chemical composition of crude oil on the train by taking samples from each of the 72 tanker cars.

Edward Burkhardt, chairman of Montreal, Maine & Atlantic Railway, operator of the runaway train, told reporters the Canadian authorities are taking a “huge number” of samples in their efforts to find out how explosions occurred in the heart of Lac-Megantic.

“Crude does not blow up,” he said.

A TSB official told Petroleum News fires from the derailed train ignited butane burners used for cooking in the town’s business district.

Additives questioned

However, the Globe and Mail said industry sources have suggested additives were combined with the Bakken crude to facilitate the transfer of the crude, while others have speculated that the tanker cars had residues of chemicals from a previous shipment, or pointed to the possibility of high levels of flammable hydrogen sulphide.

In May, Calgary-based Enbridge filed regulatory documents with the U.S. Federal Energy Regulatory Commission asking permission to refuse to ship Bakken crude with high levels of hydrogen sulphide through its pipelines.

Enbridge said in the submission that it wanted to ensure the “safe operation of its system and the health and safety of its employees.”

Both the TSB and Transport Canada are conducting separate investigations to establish how the explosions occurred, but have cautioned it will likely take months before they issue findings.

The MM&A train, carrying 72 cars of North Dakota Bakken crude, was left on a main line pending a crew change when it rolled downhill at high speed until it left the tracks in the heart of Lac-Megantic.

Operating procedures strengthened

CP spokesman Ed Greenberg said his company was “strengthening (its) operating procedures in some key areas” that were identified in the Lac-Megantic accident, and CN spokesman Mark Hallman said CN had “commenced a review of all train securement measures in the aftermath of the Lac-Megantic tragedy.”

MM&A had only one engineer on board, something only two rail carriers in Canada are permitted to do under federal regulations.

CP and CN said they use two-man crews on all trains and all rail lines. They said any tightening of their procedures would not affect the movement of crude on their systems.

Meanwhile, the Toronto-based law firm of Rochol Genova is seeking court permission to start a class-action suit against three parties involved in the MM&A shipment of 50,000 barrels. No dollar figure was attached to the filing.

The firm, which specializes in class-action suits, alleged in a news release that the defendants it has named “failed to ensure that the highly flammable contents on the DOT-111A tankers that derailed in Lac-Megantic’s downtown area ... were properly contained and safely transported.”

Several firms listed

In addition to MM&A, it listed World Fuel Services, Dakota Plains Holdings and Irving Oil and their subsidiaries as defendants, reflecting “the fact that the liability for the accident is spread across a broader network of involved corporations.”

Rochon Genova said its plaintiffs are the partner of a woman who died in the explosions which followed the train derailment and the owner of a restaurant where most of the victims died.

World Fuel and Dakota Plains are partners in a crude transloading facility at New Town, North Dakota, that connects to the CP Rail system, which carried the 72-car unit train to Montreal where it was handed over to MM&A. Irving’s 300,000 bpd refinery at Saint John, New Brunswick, was the destination for the MM&A train.

The outlook for MM&A grows bleaker, with Quebec provincial police executing a search warrant on the Montreal headquarters of the Chicago-based railway, looking for evidence of criminal negligence in the crash.

Meanwhile, the town of Lac-Megantic said MM&A had missed a deadline to pay nearly C$4 million in cleanup costs, despite issuing a legal ultimatum.

MM&A has already laid off dozens of employees, including 19 in Quebec, and is attracting a wave of rumors that it is headed for bankruptcy.

—Gary Park

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