The pipeline industry is fond of saying that it is to this century what the railways were to the past two – that its expansion binds the country together, and enables the sharing of generous natural resource wealth.
It has become clear, though, that the railways aren't ready to cede their position. Canadian Pacific Railway Ltd. and Canadian National Railway Co. enjoy growing economic might as long as proposals to build oil pipelines plod along without resolution and even as regulators and the public fret about the safety of shipping crude by rail.
The railways have been at the centre of a public crisis of confidence following a string of derailments and explosions, and now seek to ween the oil industry from the use of older tank cars that are prone to puncture and rupture by imposing surcharges for hauling them. These are the DOT-111 models built before more stringent standards were adopted in 2011. It's an alphanumeric designator that entered the mainstream following the deadly Lac-Mégantic, Que., disaster in July.
Last week, CP chief executive officer Hunter Harrison spoke about how, if it were up to him, he'd stop hauling this risky rolling stock altogether in favour of the new CPC 1232 design. But, Mr. Harrison said, he's bound by law to keep doing so because they are still allowed by regulators. Instead, he hopes that a levy of $325 a carload will be an economic disincentive to using the older models. It is not the railways that own most of the tankers, but the shippers, refiners and lessors.
CN has also called for crude shippers to phase out the old DOT-111s or retrofit them with outer shells and shields. The company said it, too, has changed its freight rates to provide an "economic incentive" to acquire new tank cars and fix up the old ones.
That sounds good. After all, who doesn't support safer railways?
Here's a question, though: Who benefits from the increased revenue?
There won't be a swift, wholesale changeover to new or upgraded cars. According to the Association of American Railroads, of which both major Canadian carriers are members, there are 92,000 tank cars carrying flammable liquids in North America and, of those, just 14,000 meet the latest standards.
New Brunswick's Irving Oil Ltd. has said it will have its entire fleet upgraded by April 30, and other refiners have made similar pledges, but there is already a backlog for new tank cars and the industry has complained about shortages. This means that the older cars will remain on the rails for a while, generating those extra fees.
Mr. Harrison maintained that the added charge is not a cash grab, but neither his company nor CN has said what they intend to do with the money. Clearly, it should not reward just their shareholders to the detriment of investors in oil companies that will bear those costs. Instead, it should go toward bolstering the safety of moving oil and other flammable materials by train between and through towns and cities, and to cleaning up after derailments.
For instance, another disincentive that the oil industry deals with today is Alberta's $15-a-tonne levy on carbon emissions. That kitty is used to fund technology to reduce the emissions, rather than getting funnelled into general revenue.
One possibility that may be under discussion with Ottawa is the development of a crude-by-rail liability pool, in lieu of forcing railways to carry massive amounts of insurance coverage, said Keith Stewart, climate and energy campaign co-ordinator for Greenpeace. A similar fund is in place for marine oil spills. The industry and government have been in talks about liability since the Lac-Mégantic disaster.
One thing's for sure: Oil shipments by rail show no signs of letting up, especially as opponents to TransCanada Corp.'s Keystone XL pipeline seek new ways to persuade U.S. President Barack Obama and Secretary of State John Kerry to keep delaying a decision on approving the project.
Senator Barbara Boxer, a California Democrat, sought to open up a new front in the battle against the pipeline this week, seeking a comprehensive study about the health impacts of the oil sands, from production in Alberta to end use in the U.S.
It may raise more questions about the fate of Keystone XL but it won't do anything to stem the flow of crude by train, or higher fees as long as the older tank cars roll.
Jeffrey Jones