The catastrophic crash of an oil-laden freight train in a small Quebec town last weekend will bring more scrutiny to the railroad industry's transport of oil and may boost the case for pipeline development.
But it is unlikely to slow the momentum of rail shipments of oil in North America, which has grown dramatically from about 100,000 barrels a day in 2010 to about 900,000 barrels a day by the first quarter of this year, according to IHS CERA estimates.
"This was a freak accident. The record of this industry in safety overall in moving a lot of hazardous product has shown steady improvement over the last decade, and I'm very convinced that there will be steps taken to continue this trend," said Tom Petrie, chairman of Petrie Partners. "This is a horrible tragedy without question. It's such a freak accident. Trying to diminish its import is not something I would do in a minute, but the nature of what's going on in my view is one that there's a powerful incentive to do it well, to do it right and to do it safely, and I think the industry is going to go to great lengths to do that."
"On the margin, it probably helps the case for the XL pipeline … but not the elimination of the railroads," he said. The Keystone XL pipeline, an extension of TransCanada's system that would link the Canadian oil sands with Gulf Coast refineries, has been delayed by the Obama administration and is still under review for its potential greenhouse gas impact.
The Canadian oil sands in Alberta are an important piece of the North American energy picture, and together with growing U.S. oil production, will essentially make the continent independent of foreign oil before the end of this decade, industry experts have said. The U.S. currently is producing 7.3 million barrels of oil a day, up 20 percent from year-ago levels.
"I think the Keystone pipeline proponents will cite this as a reason why pipelines are safer than rail. There's no doubt in my mind that they will point to it," said Andrew Lipow, president of Lipow Oil Associates."Rail, I believe, is going to continue to grow as North Dakota oil production continues to climb. We're growing train operations in places like Wyoming, Colorado as well as to a lesser extent, Ohio, where we have the Utica shale."
Analysts do not believe the accident means Keystone will get approved, but it will certainly bring it back into focus.
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"It will revive the debate, and that's good so people talk about it instead of just pushing it under the rug because it's really needed," said Oppenheimer energy analyst Fadel Gheit. "We went to rails because the pipeline option wasn't available. Need is the mother of invention."
Gheit does expect to see a push for safety on railroads, from companies and governments, and he expects to see more government safety checks. "It will tighten the rules on rail... People think it's an old horse and it's not going to hurt anyone," he said, adding even an old horse can kick.
Another pipeline project that might find support after the tragic train derailment is the proposed TransCanada Energy East pipeline, which would transform an existing natural gas pipeline to oil. The pipeline goes from Edmonton, Alberta, to Quebec and could be extended to St. Johns, the location of the Irving refinery where the derailed train was heading. "The rail accident might actually help that project proceed," Lipow said.
"I do expect continued growth (of rail) in Canada. We're still not building any pipeline," Lipow said. "You can get train service up quickly."
The accident occurred early Saturday when an unmanned train hauling 72 tanker cars of oil sped seven miles into the town of Lac-Megantic, before derailing, exploding and bursting into flames. Thirteen people were killed and dozens were reported missing. Montreal, Maine & Atlantic Railway, owned by privately held Rail World Inc. of Chicago, was the operator of the train.
On Monday, Montreal, Maine & Atlantic Chairman Ed Burkhardt told Reuters that air brakes that could have prevented the disaster failed because the engine that powered them was shut off. Local firemen dealing with a fire just before the accident occurred had shut off the engine. The Wall Street Journal reported Tuesday that MM&A has an accident and incident rate in the U.S. much higher than the national average.