Already, this weekend’s train tragedy in Lac-Mégantic has elevated the rail versus pipelines debate.
Such punditry about energy systems seems trite and insensitive while people’s thoughts are absorbed with those who just perished or are still missing. Yet soon enough the citizenry’s attention will turn to policy-makers and corporate leaders to address specific issues of transportation safety, pipes versus rail cars, and the broader issue of social licence to pump more petroleum through the land.
Antithetical voices that insist on the end of oil will amplify in the aftermath of this calamity too. Lots of opinions can be expected. But let’s step back: What the Lac-Mégantic catastrophe highlights is that this country’s energy policy is off the rails. The cause of the derailment and fire is still being investigated, but we do know that the shipment of oil by rail in Canada has nearly tripled in the past 18 months.
Let’s look at the trends. Our chart shows that there has always been a fairly steady movement of oil at any one time, about 100,000 barrels every day before 2012. Much of that volume has been composed of crude oil and petroleum products being shunted around in eastern markets, and a lot of it includes cross-border trade between U.S. and Canadian refineries.
We don’t know whose oil was on the train at Lac-Mégantic, but it’s not likely to be of western Canadian origin. Most of the oil in the east is brought into ports like Montreal and New Jersey from places like the North Sea, Middle East and West Africa. Imports then get refined and distributed – or distributed and refined – to mostly serve traffic jams in high-population-density markets in the Northeast.
Around the end of 2011, Canadian petroleum shipments by rail started gaining momentum. The rise in volume from 100,000 to almost 300,000 B/d was a direct consequence of wide differentials between the price of Canadian and U.S. oil, caused by constrained pipeline capacity.
To Alberta oil producers, a $30 per barrel price discount was a threat to the viability of their business; but to the railroad companies it spelled opportunity – especially sweet, because building new pipelines had become a lightning rod for environmental activism and quicksand for regulatory approval.
Most of the incremental 200,000 B/d is now heading south of the border from Alberta, fetching higher prices again, and also lining the pockets of U.S. railroad companies instead of Canadian pipelines. Like it or not, rail traffic carrying petroleum in all directions of the compass in North America will continue to increase. More large-scale loading and unloading facilities are being built in oil fields and refinery sidings to handle trains dedicated to hauling oil.
Scanning through public announcements, in Canada another 450,000 B/d of new capacity additions are slated for construction – all while there is multiyear dithering about pipeline approvals and construction. On one hand, this is the beauty of the free market at work; there’s nothing stronger than competition and innovation when it comes to solving inefficient markets.
But a rapid rise in crude oil rail shipments is an unplanned societal outcome. It’s an unintended, reactionary consequence of laggard thinking about how we should be transporting one of the biggest contributors to the Canadian economy in an era that’s characterized by massively disruptive changes in supply and demand.
In a region that already had plenty of oil on the tracks, there was always the risk of an accident in a community like Lac-Mégantic, regardless of the recent increase in Canadian traffic. But that’s not the point. Nor is the point that three times as many cars carrying flammable products increases the probability, however marginal, of another tragedy in some other quaint community, at some point. And for sure this rail tragedy is not a simple-minded justification for building more pipelines indiscriminately in all directions across the land.
There has to be balance to a problem that is much broader in scope, a problem that begs us to figure out how to optimize safety, environment, national security, First Nations and economic prosperity concerns across our privileged nation. Canada is one of the largest producers of primary energy resources. We have world scale reserves of oil, natural gas, coal, uranium, hydroelectric power, wood and other renewable sources too.
Yet despite our global energy stature, we have a sad lack of cohesive, pro-active thinking about how we should be producing, consuming and trading all our valuable energy resources, not just oil. Lac-Mégantic is a most unfortunate metaphor: how we think about energy is like a train without a conductor.