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Crews work in the area of the derailed tanker cars in Lac-Mégantic, Que., on July 14, 2013. The train derailment and subsequent fires and explosions destroyed much of the downtown area of the picturesque Quebec town. (PETER POWER/THE GLOBE AND MAIL)
Crews work in the area of the derailed tanker cars in Lac-Mégantic, Que., on July 14, 2013. The train derailment and subsequent fires and explosions destroyed much of the downtown area of the picturesque Quebec town. (PETER POWER/THE GLOBE AND MAIL)

GLOBE INVESTIGATION

Inside the oil-shipping free-for-all that brought disaster to Lac-Mégantic Add to ...

Globe and Mail Update Dec. 02 2013, 6:00 AM EST

Video: From the U.S. to Lac-Mégantic: Inside the massive growth of oil by rail

As Mr. Pritchard knows from his years of inspecting railways, and sharing insight with other inspectors, not all crude is the same.

“Some of it, I was told, it’s damn near close to gasoline,” he said.

High risk, low oversight

Before the oil boom, state legislators in North Dakota faced a tough decision: what to do with miles and miles of useless and decaying railway tracks. The rails were becoming too expensive to maintain, but they were no use to a dwindling industry that was shipping fewer loads of grain every year, and had all but abandoned the line.

Lacking a better solution, the state decided to turn the track into a bike path.

Had that plan been put in place, history might be much different. But before the old rail lines could be torn from the ground, something happened: North Dakota struck oil – so much that there were not enough pipelines to move it. And rail suddenly became popular again.

In fact, the roots of the Lac-Mégantic derailment were planted five years ago, by an offshoot of Enron Corp., the failed energy giant. Enron Oil and Gas, or EOG Resources as it is now known, was among the first energy producers to begin exploiting the rich Bakken oil reserves that straddle much of North Dakota and parts of southern Manitoba and Saskatchewan.

But EOG had a problem: It needed a way to get that oil to refineries.

New pipelines took years to build, but trains were a relatively quick and easy solution. The tracks were already in place and the railroad companies were eager for new business. Although oil had never been shipped in large quantities by rail – in 2008 not a single barrel of oil produced in North Dakota left by train – there was no reason it couldn’t be, EOG believed.

In the early 1900s, the railway industry came up with a new concept to move large quantities of grain, called the unit train. These were trains of 80 to 100 cars, comprised entirely of the same product, which travelled on an express route from prairie to port as a way to speed up commerce. Although unit trains were historically used primarily for non-hazardous materials, EOG saw no reason why it couldn’t move 100 cars of oil quickly down the tracks. Regulators saw no problem with it either.

EOG needed a way to fill the trains quickly, though, since loading 100 cars of oil could take days or weeks if done car-by-car. The company spent 2008 building a vast crude loading facility the size of 26 football fields on the vacant North Dakota prairie, where tanker cars were filled with oil using more than a dozen pumps working in tandem, then sent quickly on their way.

Speed was the key ingredient. According to an internal management presentation obtained by The Globe, EOG had invented a way to fill 100 rail tankers in about half a day. On Jan. 31, 2008, the first unit train of oil rolled out of North Dakota on its way to Oklahoma, and the industry changed forever.

“EOG was the godfather of this industry,” said a senior industry official who spoke on condition his name not be used, fearing for his job in the wake of the Lac-Mégantic disaster. “Before that, we hadn’t shipped very much crude by rail at all.”

EOG’s business boomed and other companies rushed to build similar loading facilities. By 2012, more than a dozen of them were in operation or slated to be built. But to move this much oil, neither the railways nor the oil companies needed to ask permission.

According to interviews with rail industry personnel and former hazardous materials inspectors, neither Transport Canada nor the U.S. Department of Transportation differentiated between the danger of moving a single car filled with crude oil, and moving a train carrying 100 cars of oil. The industry changed, but the rules overseeing it didn’t, said a former top rail inspector.

Alan Roberts spent 43 years at the U.S. Department of Transportation investigating rail accidents, and oversaw the hazardous materials department, based in Washington, from 1975 up until his retirement at the turn of the century. He said Canadian and U.S. regulators have effectively left railways in charge of themselves when it comes to shipping oil, aside from some rudimentary rules governing track usage and restrictions on how fast a train can travel based on its weight.

“The whole distribution configuration has changed,” Mr. Roberts said. Yet “there is virtually no regulation that I’m aware of” for moving large amounts of oil.

Meanwhile, the railways were racing ahead and banking unprecedented revenue from moving oil. Not surprisingly, they began to fight fiercely over the unit train business. Glossy brochures sent by railways to oil companies tell of a booming new industry, focusing on the speed of moving oil down the tracks.

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