Market News

 October 16, 2013
If B.C. pipelines not built, oil will flow west by rail

 B.C. and Alberta acknowledged Tuesday that if the Northern Gateway and Trans Mountain pipelines to the west coast are not built, rail will fill the "void" to the coast.

It's the first time the B.C. Liberal government has stated that Alberta oilsands bitumen will flow to the B.C. coast and onto tankers destined for Asia whether or not pipelines are built.

The acknowledgment came in a terms of reference released by B.C. Premier Christy Clark and Alberta Premier Alison Redford on their joint effort to co-operate on opening new markets and expanding exports for oil, gas and other resources.

The move marks a return to more friendly relations after the premiers clashed last year over Enbridge's $6.5-billion Northern Gateway project to Kitimat. Kinder Morgan has also proposed a $5.4-billion twinning of its Trans Mountain line to Burnaby.

Natural Gas Development Minister Rich Coleman said if B.C. is going to have a discussion about transporting oil with Alberta, it must include the prospect of rail in order to determine the safety and environmental risks.

However, in the aftermath of July's deadly explosion of a runaway oil train in Lac-Mégantic, Que., Coleman said transporting oil by rail makes him nervous. The derailment and subsequent explosion left 47 dead.

"There's been no prejudgment on this, but I can tell you that we are not interested in seeing millions of barrels of oil move by rail across British Columbia without being assured absolutely of the safety of the land base," Coleman said from South Korea, where he is talking to companies about LNG prospects in B.C.

Coleman's deputy minister is co-chairing the working group created by the two western premiers to deliver recommendations by the end of the year on how the provinces can work together on marine and land spills, fiscal and economic benefits, First Nations' consultation, transportation and social licence.

The issues are similar to the five conditions that Clark declared in 2012 must be met for the province to consider the construction and operation of heavy oil pipelines.

The conditions include a world-class marine and land spill response, prevention and recovery system.

The terms of reference released Tuesday stated that both pipeline and rail transportation are viable alternatives for the movement of energy resources to the west coast.

"If pipelines are not developed, rail will step into the void to deliver bitumen to the West Coast," said the 10-page terms of reference.

Rail is a federal responsibility, but the document notes the two provinces need to consider rail safety measures. "It will be necessary to ensure that new modern rail cars that are designed to handle bitumen are used to mitigate environmental risks along with adequate overpasses and rail sidings to protect communities," states the terms of reference.

Coleman said he has told the federal government that rail would be the wrong solution and that the five pipeline conditions need to be met.

Internal federal government memos published earlier this fall showed CN, at the urging of Chinese-owned Nexen Inc., is considering shipping Alberta bitumen to Prince Rupert in northwest B.C. by rail as a possible Plan B if the Northern Gateway is blocked.

Coleman noted the rail line to Prince Rupert is only operating at 30 per cent capacity. He said he was aware work has been done to examine it as an oil rail route.

Rail lines such as CN and CP have already been ramping up shipments of oil elsewhere in North America as decisions on pipeline projects have been delayed. That includes TransCanada's controversial $5.3-billion Keystone XL project to the U.S., which has not been approved by U.S. President Barack Obama.

CN transported oil in about 30,000 rail cars in 2012 and expects to double that to about 60,000 in 2013. The latter number is equal to about one fifth of the volume that would be shipped on the Northern Gateway pipeline each year.

CN declined to comment directly on the premiers' terms of reference statement on transporting oil by rail.

But CN spokesman Mark Hallman noted railways have a solid record in transporting hazardous material. According to the Association of American Railroads, of which CN is a member, 99.97 per cent of hazardous materials carloads moved by railroad arrive at their destination without a release caused by an accident.

"The safety of CN's operations and of the communities in which it operates is of the utmost importance to the company," Hallman said in an email.

There has been significant opposition to the two Alberta-to-B.C. pipeline projects, but environmental groups and First Nations also have concerns over transporting oil by rail.

Before B.C. considers the issues of shipping oil by rail, it needs to examine efforts in the U.S. meant to strengthen safety, says Eoin Madden, a climate change campaigner with the Wilderness Committee.

After the deadly Lac Mégantic crash, the U.S. Federal Railroad Administration said American companies were shipping crude oil in unsafe rail cars that are often overloaded and that potentially contain corrosive, explosive and flammable materials that are not fully identified on shipping manifests.

Madden said there's an inherent threat in proposing transport of oil by rail to the coast as an alternative to pipelines.

"They're saying, 'We're going to go by rail and it's super dangerous, unless you let us put our pipelines through'," he said.

Geraldine Flurer, coordinator of the Yinka Dene Alliance in north-central B.C., said transporting oil by rail is not acceptable to First Nations that already oppose the pipelines.

"Just imagine if there was just one accident --- there would be devastation," she said.