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Plan to expand Hardisty oil-by-rail terminal overhauled

An ambitious plan to expand an oil-by-rail terminal outside Hardisty, Alta., is being overhauled after the federal government ordered the first-ever environmental review of a rail-based oil shipping facility.

Amber Bracken/The Globe and Mail

An ambitious plan to expand an oil-by-rail terminal outside Hardisty, Alta., is being overhauled after the federal government ordered the first-ever environmental review of a rail-based oil shipping facility.

The expanded Hardisty rail terminal would be one of Canada's largest oil-by-rail export facilities, capable of holding and filling 480 rail cars daily on a large oval of railroad track. With a capacity of 280,000 barrels a day, the project has been compared with a small pipeline by opponents.

Last month, the Canadian Environmental Assessment Agency (CEAA) concluded the plan to expand the facility should undergo a federal environmental assessment based on the amount of new rail infrastructure involved, an unprecedented move that caught the Houston-based company behind the project off guard. The assessment was to look at whether the expansion of the terminal could have adverse environmental effects.

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Federal scrutiny of the Alberta terminal would be one of the first public reviews of the growing oil-by-rail industry since the disaster in Lac-Mégantic, Que.

"We didn't expect that result ourselves, but we did know that there was the chance," Josh Ruple, a vice-president of USD Group, said after the review was ordered. But he added the company was not concerned about the extra regulatory hurdle, one which would have added three to four months to the project, because the company has undergone similar reviews in the United States.

On Wednesday, the CEAA said the agency "has been advised by the proponent that it no longer intends to carry out the project as described." The federal government has marked the environmental review as cancelled.

A spokesman for USD Group could not be reached to comment on the company's plans for what comes next.

The CEAA announcement was made on the same day that federal Natural Resources Minister Jim Carr and federal Environment Minister Catherine McKenna announced new steps for projects undergoing regulatory reviews, including greater consultation with First Nations and the inclusion of the direct and indirect impact of greenhouse-gas emissions resulting from the projects. Oil-by-rail terminals would fall under the new rules.

Unlike the National Energy Board process for reviewing pipeline proposals, there is no federal process that governs the oil-by-rail industry. The terminal expansion falls within the federal agency's jurisdiction not because of its link to oil, but because of the size of the proposed rail facility, CEAA spokeswoman Karen Fish said.

All rail projects with more than 20 kilometres of track or seven rail spurs are covered by the federal rules in the Canadian Environmental Assessment Act of 2012 – the Hardisty project, as it was when the review was ordered, would have surpassed that threshold with nine new rail spurs.

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In a notice to USD Group, the federal agency cited the project's description, "the possibility that the carrying out of the project may cause adverse environmental effects" and unspecified comments received from the public for its decision to order the report.

The town of Hardisty is one of the cornerstones of Canada's oil and gas system. It was to be the starting point of the Keystone XL pipeline – the project meant to carry crude to the U.S. Gulf Coast. The United States may have rejected that project last year, but numerous major pipelines start in the massive tank farm outside the community. With the price of oil in a major slump and the energy industry so far unable to get a major new pipeline to carry exports from the landlocked prairies to tidewater, oil-by-rail transportation offers hope.

However, the option is facing greater scrutiny since the explosion and fire that devastated the town of Lac-Mégantic.

With the federal Liberal government committed to reducing Canada's carbon emissions, environmental groups had hoped the federal review of the expansion of the Hardisty terminal would have become a broader examination of the oil-by-rail industry.

While CEAA would not confirm whether this would have been the first oil-by-rail project to be reviewed by the federal government since the current regulatory system was introduced in 2012, no similar project is listed within the agency's database.

The price of a barrel of oil closed below $34 (U.S.) on Friday. The facility would add to the growing number of oil trains that have become a common sight in Canada as pipeline projects from Alberta's oil sands have stalled. Oil production continues to increase in Alberta's oil patch, and in the absence of new pipeline capacity, the burden for transporting larger volumes of oil could fall increasingly on the national rail system.

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Before an oil-train derailed in Lac-Mégantic in the summer of 2013, the growth of the oil-by-rail industry had gone largely unnoticed.

Keith Stewart, the head of Greenpeace Canada's energy campaign, said the transportation of oil by rail "fell between the cracks."

"It was too small for too long. Once it ramped up, there was never any questioning about whether this was a good thing or whether it was safe," Mr. Stewart said.

With the federal announcement earlier this week, carbon emissions from the oil transported by rail cars could be considered as part of the environmental impact of a future plan for an expansion of the Hardisty terminal.

Speaking before Wednesday's announcement, Mr. Stewart said he expects the federal government to treat the oil-by-rail facility like a pipeline and consider how it could allow energy production to increase.

"I don't see how Justin Trudeau can say yes to oil-by-rail and yes to the Paris [climate] conference," he said.

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