Moving money - pipeline or rail?

(Photo: Shell)

The transportation of Canadian crude oil is all over the news these days, and for all the wrong reasons. Deadly tanker accidents on rail lines and the ongoing controversy over the Keystone XL pipeline for environmental reasons are driving a wedge in public opinion between those that want the economic benefits of western energy and the group concerned about safety and environmental risk.

It’s a complex issue with both technical and political considerations that often trump the reality of moving oil over the large distances of the continent.

Rail is flexible, but is it safe? 

With 47 dead and millions in damage, last summer’s Lac Megantic railway disaster was a worst-case scenario for rail haulage of crude oil. While the Transportation Safety Board is operating an ongoing investigation into the disaster, and the direct cause is clearly an operational issue, the question of the safety of the current generation of DOT – 11 tanker cars is very much on the table. Is current tanker car design deficient? DOT – 111 standards for cars ordered after October 2011 require cylindrical tank bodies with hemispherical tank ends welded from 7/16-inch material, specifically carbon steel, aluminum alloy, HSLA, or nickel steels.

For cost reasons carbon steels are typically used, in normalized plate grades. The normalized steel is essential to maintaining sufficient toughness at higher yield strengths than tempered steels. The need to build with readily available steels with good weldability and formability is crucial; in 2009 11,300 carloads of crude oil shipped in North America. In 2013 that number was 560,000.

At Lac Megantic, 63 DOT– 111 cars carrying Bakken crude oil derailed. Current TSB estimates state that 6,000,000 L, (about 89 per cent of the total load) of oil was released from ruptured cars. A preliminary Transportation Safety Board of Canada report has identified in the steel plate, vulnerable top and bottom fittings, and inadequate thermal protection as contributing factors in the accident.

Although the age of cars ruptured in the accident has not been announced, cars ordered before October 2011 were only required to use non-normalized 7/16-inch thick A516–70 steel. As far back as 2010, a University of Illinois statistical analysis determined that tank ruptures from DOT – 111 cars can be reduced by 50 per cent with thicker steel, tank jackets and shields on tank heads.

New Association of American Railroads requirements increase minimum head and shell thickness to ½ inch for non-jacketed cars and 7/16 inch for jacketed cars. Normalized steel is specified as is a ½ inch thick head shield. According to the AAR, 92,000 DOT – 11 ones are used to carry flammable liquids, but only 14,000 are built to be post-October 2011 standards.

With the typical tank car life expectancy of up to 40 years, that represents 78,000 of the more vulnerable designed cars in daily use across the continent.

Transport Minister Lisa Raitt has called for requirements for upgrades to the DOT – 111 standard, but the move is symbolic, as the industry has already adopted tougher requirements.

The railroad industry is in a difficult position; although they are liable for loss of life and environmental damage, railroads typically do not own the tank cars they haul, making the association a strong advocate for stronger construction.

Complicating the problem is the light Bakken crude oil now shipping from Saskatchewan and North Dakota. Gaseous volatiles that are dissolved in the oil, when released in a post-crash fire, can create pressures sufficient to rupture tank shells, as well as contributing to very high temperatures which further degrade steel properties.

Retrofit costs, which can approach $100,000 per car (nearly the new build price) make retrofitting 78,000 tank cars in the foreseeable future unlikely. A lower cost alternative that would increase safety however, would be extra guarding on tank valves and fittings, combined with strengthened attach fittings between tank and wheel bogie assemblies. An intermediate step may be to increase guarding on tank valves and fittings.

An upgrade like this would create a ready market for laser or waterjet cut plate steel retrofit kits - a relatively simple development for Canadian fabricators.

Operationally, “unit trains” dedicated as crude oil carriers will likely be routed around population centres and operating procedures revised to prevent tragedies like Lac Megantic. With little progress in pipeline development, and increasing production from Bakken and other formations due to new fracking technology, rail shipment of crude oil will be a growth industry for the foreseeable future.

Are pipelines the answer?

For bulk transportation of liquid commodities, nothing beats pipelines for cost and efficiency. In the 21st century however, cost and reliability have become side issues compared to environmental concerns. The Keystone XL debate will likely determine the future of large-scale crude oil pipelines for at least a decade, and the issues are highly political. For the Obama administration in Washington, the project risks alienating the Democrats’ environmentally conscious wing with approval, or with rejection, slams the door on a significant job creator during a stubbornly slow recovery.

For environmentalists, Keystone XL carries a dual risk: potential damage to sensitive aquifers in the event of a pipeline rupture, and the increased CO2 burden from the petroleum products refined from Keystone-delivered crude.

Oilsands growth is expected to double by 2020. (Photo: Shell)

While the global warming implications aren’t directly related to the mode of transport, the spill risk is a major engineering issue and a big part of the recently released US State Department Final Supplemental Environmental Impact Statement on the project. The report, although only one component of the Obama administration’s decision-making process, makes an extensive risk analysis and both pro-and anti-Keystone advocates claim that the report supports their positions.

Environmentally and from athe pipeline construction perspective, the key issue is the relative risk of crude oil release from Keystone XL completion of the Alberta to Gulf Coast system (XL is just a part of a major network already in place), versus rail tanker carriage to the Steel City Nebraska terminal where it would then be pumped southward.

According to the report, Keystone XL would result in a statistical 0.46 release per year rate, with annual amount of crude released at 518 barrels. Rejection of XL, resulting in a combined rail/pipeline system by comparison would result in 294 releases per year, with a total amount of crude released at 1227 barrels.

Statistically, the total amount of crude released is not significantly different for each method, surprising considering the expected large number of tank car release incidents in the rail scenario.

This is because of the relatively small amount of crude released in most rail incidents, compared to relatively large volume expected in a pipeline rupture. On average, Keystone XL is expected to experience a rupture every other year, releasing an average of approximately 1,000 barrels of crude oil.

The rail scenario envisions approximately the same number of barrels spilled each year, but released through 300 annual rail incidents. While the pipeline option is initially safer, pipeline performance is relatively fixed over the life of the project; rail transport safety is expected to improve progressively as more modern, thicker wall tank cars and better track monitoring systems are implemented in the coming decades.

While many analysts at the time of writing point to a high concentration of dissolved volatiles in Bakken crude as a major factor in the magnitude of the Lac Megantic disaster, Keystone XL would carry a form petroleum at the opposite end of the spectrum: bitumen.

In fact, the line would carry diluted bitumen or ‘dilbit’ containing a light petroleum liquid fraction to make the product pumpable. In the case of a spill, a catastrophic explosion is less likely, but many environmentalists argue that bitumen separating from the dilutant would sink to the bottom of lakes and rivers, causing a difficult-to-clean hazard to aquatic flora and fauna.

Not surprisingly, the petroleum industry disagrees. In the short term, regardless of the status of the Keystone XL project, an important consideration for Canada is that our portion of the system is already built, so from a pipeline construction standpoint job creation will be in the US.

The proposed Energy East project would involve both  construction and modification of existing pipelines, while the Northern Gateway project to the Pacific would be “new build”. While there are multiple reasons for a comprehensive east-west pipeline in Canada, from an export perspective giving Asian consumers easier access to Alberta and Saskatchewan petroleum is economically attractive and a good hedge against possible rejection of Keystone XL.

Northern Gateway however, is far from a done deal. The project has been an issue between the British Columbia and Alberta governments as well as aboriginal groups who have both financial and environmental concerns with the project. In June 2013 BC Premier Christy Clark outlined five conditions for approval of the project:

• Successful completion of an environmental review process

• A state-of-the-art oil spill response prevention and recovery system for BC’s coastline and ocean

• A similar response and recovery system for land oil spills

• Legal agreements with First Nations and Métis stakeholders

• A negotiated share of fiscal and economic benefits for British Columbia While the environmental review and technical issues around oil spill prevention response are readily solvable, environmental review process and aboriginal claims will

take years - if not decades - based on past experience.

Alberta, environmental policy is very much in play politically at the provincial level, a long approval process with plenty of time for the environmental lobby to line up support. It’s likely that Ottawa would play a part in resolving the issues, and with a federal election in 2015, the project could be stillborn or seriously delayed with a Liberal victory.

Regardless of outstanding environmental and safety issues, the amount of money at stake in moving Canadian oil and gas is colossal. Sooner or later, by pipeline or rail, that energy will get to market. Which market will depend more on political considerations than technical or economic issues. Canadian Metalworking will continue to monitor this vital industry; look for an Energy and Resources Report in our May issue.