By R. Bruce Striegler

Canada’s oil industry has been facing record-low prices for its exports, a glaring lack of insufficient pipeline capacity to bring its product to market, and an uncertain long-term outlook. None of these factors, however, are stopping Alberta oil producers from increasing production, and relying more heavily than ever on rail to move the product. According to Statistics Canada, the volume of oil on Canada’s railroads has soared by 64.6 per cent in just the past year. And in the past seven years, the number of rail cars carrying oil across Canada has quadrupled. As one pipeline project after another fails to launch, the industry is relying more heavily on rail than ever to ship its oil.

According to the National Energy Board, Canadian railways hauled 353,789 barrels of Alberta oil in December 2018, the highest volume of oil-by-rail listed in NEB’s statistics. The International Energy Agency says crude-by-rail shipments in Canada are expected to more than double over the next two years as a lack of pipeline capacity forces producers to look to alternatives.

Lacking a national consensus on oil, interest groups in separate parts of the country are exerting pressure to slow, delay or bring about cancelation of pipeline projects. Incredibly, complex environmental assessments can cost hundreds of millions and can take up to a decade to complete, while consultation efforts never seem to cover all the issues. The anti-pipeline sentiment is not confined to random sections of Canada. The most visible symbol outside the country is Keystone XL: President Barack Obama rejected the $8 billion project, bowing to pressure from environmental groups and indigenous communities along the pipeline’s path. TransCanada Corp. won approval from the Trump Administration last year, but construction will not start until next year—about a decade after the project was first proposed. Protesters of KXL continue to block bridges and create delays, while at numerous other pipeline projects in the U.S., protestors continue to impede work. Ominously, Vivian Krause, a Canadian researcher, has documented the multi-million dollar financial support of well-organized and well-funded activist American organizations that have donated funds to Canadian environmental organizations whose objective is to prevent Canadian resources from being exported to compete with American exports.

As if to demonstrate the lack of consensus, on the Monday following New Year’s, media reports began circulating detailing how B.C. First Nations hereditary chiefs and their supporters were blockading pipeline workers trying to access a worksite in a remote area of Northern British Columbia. The blockade was illegal and followed a court injunction ordering them to move and grant access to the company building the pipeline. The Chiefs were unequivocal: “We want them right off Wet’suwet’en territory,” Chief Madeek was quoted in the reports. The workers were there to begin construction of the Coastal GasLink Project, a line slated to carry natural gas from the Dawson Creek area to a plant near Kitimat, where it will be converted to a liquid form for export by LNG Canada. TransCanada, chosen by LNG Canada to build and operate the line, claims signed agreements with all First Nations along the proposed pipeline route to LNG Canada’s $40-billion liquefied natural gas project on the coast. But the hereditary leaders say those agreements don’t apply to the traditional territories.

Politics the driving force behind Alberta actions to end “oil crisis”?

The heavy crude extracted from the oil sands usually sells for US$10-US$15 less per barrel than West Texas Intermediate (WTI), because it is more difficult to refine and must be transported longer distances to refineries in the American Midwest and on the Gulf coast. That gap (the “discount”) has widened considerably since last July, at times approaching US$50 a barrel. Oil producers and the Alberta government both cite overproduction of heavy crudes relative to pipeline capacity for the problem. They insist that if the federal government had pushed harder to get at least one of five proposed pipelines built, onerous pricing problems would have been averted.

The Alberta Government estimates the province is losing $80 million a day due to the discount. To address market imbalances, Alberta Premier Rachel Notley announced on December 2 a province-wide 8.7 per cent short-term cut to oil production to begin in January 1. The plan, which would end Dec. 31, 2019, is expected to reduce the discount by at least US$4 per barrel relative to where it would have been otherwise, and contribute an additional $1.1 billion to the Alberta Treasury by the fiscal year ending in 2020. However, within days of the announcement, and well before the first day of the plan’s implementation, the discount reverted back to the normal range of US$10-US$15 per barrel. By all accounts, although it’s still early days, regulation of the volumes of Alberta crude oil production appears to have been highly successful.

On February 19, Premier Notley further proposed the government of Alberta lease 4,400 tanker cars to export oil from the province, after having negotiated contracts with both CP Rail and Canadian National to provide all the necessary services and track to move the cars to refineries in the United States. The government of Alberta will purchase the oil from local producers, and will sell it to U.S. refineries through the Alberta Petroleum Marketing Commission. Service will start in July of this year, with planned shipments of some 20,000 barrels/day, to ramp up to 120,000 barrels/day by mid-2020. The plan is anticipated to continue for three years, until such time as additional pipeline capacity has been brought into service. Notley has indicated she is hopeful of financial assistance from the federal government, although federal Finance Minister Morneau has been lukewarm to the proposal.

International organizations predict oil-by-rail exports to climb to nearly 600,000 barrels daily

In British Columbia, location of the original anti-oil protests, reaction to Notley’s proposal has been muted. In published reports, Sven Biggs, a climate campaigner with, said it’s his organization’s understanding that almost all oil transported by rail in Canada goes to the U.S. Midwest and Gulf Coast, and any cars added by the province of Alberta would head in the same direction. “It’s very unlikely any of that oil would come through British Columbia,” he said. B.C. Environment Minister George Heyman responded, saying that the government was committed to protecting the province from the risks of diluted bitumen, regardless of how it’s shipped.

Provincial officials estimate the total cost of the initiative to be $3.7 billion over three years. In addition to recovering the cost, the province anticipates that it will collect additional royalties and tax revenues of some $2.2 billion. “Don’t mistake me, this is not the long-term answer. New pipelines are the long-term answer. More upgrading and refining is the long-term answer,” she said.

Paris-based IEA forecasts that crude-by-rail exports will grow to 250,000 barrels a day in 2018, and then to 390,000 barrels a day in 2019. It says shipments could peak as high as 590,000 barrels a day in 2019 if producers don’t resort to crude storage in peak months.

Generational impact shows in new opinion poll as to the “oil crisis” and pipelines

A new public opinion poll released by the Angus Reid Institute in mid-January 2019 indicates that public opinion around the need to build new pipelines is slowly growing across the country, with the exception of Quebec, where opposition remains strong. It found the majority of Canadians ages 18 to 34 were not supportive of pipelines, while little more than half of those ages 35 to 54 were supportive. Those over the age of 55 expressed the most support for pipelines and labelled the lack of adequate pipeline capacity a crisis. British Columbians tend to be most worried about the safety of shipping oil and gas through Canadian waters to overseas export destinations.

Fifty-eight per cent affirmed that the lack of new oil pipeline capacity constitutes a crisis, while 42 per cent said it does not. Responses varied widely across the provinces, with a high of 87 per cent of Albertans calling it a crisis while, at the low end, only 40 per cent of Quebecers had a similar sentiment.

The Trans Mountain pipeline carries Alberta crude to tidewater in Vancouver, and the proposal to twin the line does have net-positive support in both B.C. and Alberta, despite high-profile opposition in British Columbia. In B.C., 47 per cent favour TransMountain and Energy East compared to 22 per cent who oppose both. The gap in Alberta is much wider – 87 per cent favour both while two per cent oppose both. Pollsters noted a marked departure from past national polls on oil pipelines saying that interest in pipeline capacity has now moved beyond Alberta and B.C. to become an issue of national importance.

The comparative safety rates of transporting oil

Both the Government of Canada and the U.S. Department of Transportation ordered the phase-out of the DOT 111 tanker car following the tragedy of Lac-Mégantic in 2013. The older tanker cars are made of 7/16” thick steel, making them more susceptible to damage than thicker steel and there are various problems with heat shields at each end of the car, as well as valve issues on the tops or the cars, leaving the valves unprotected and susceptible to damage if the car rolls over.

The replacement model tankers transporting crude in Canada must be TC-117 compliant (or DOT-117 in the U.S.) which provides a number of enhanced safety features. The replacement TC-117 model is manufactured with 9/16” steel and full heat shields, while the outer cover jacket keeps insulation in place and provides extra strength and reinforcement. The TC-117 car has an improved design with increased puncture resistance. The tankers must be able to withstand exposure to a 100-minute pool fire and a 30-minute jet fuel fire without rupturing.

Shipping Alberta oil by rail has higher environmental risk than pipelines

In a 2016 study by the Fraser Institute, researchers found that oil shipped by rail was 4.5 times more likely to experience some kind of incident. The study’s authors concluded that over 70 per cent of pipeline “incidents” result in spills of one cubic metre or less, and only 17 per cent of pipeline occurrences take place in actual line pipe, meaning that the vast majority of spills occur in facilities which may have secondary containment mechanisms and procedures.

Transporting oil by rail costs up to three times more than by pipeline, and truck transport costs costs even more than rail. There is universal agreement that pipelines also have a smaller environmental emissions footprint compared to rail or truck. Transporting oil by pipeline produces up to 77 per cent less greenhouse gas emissions than by train. There is some irony in this, as most of the environmental organizations opposing the TransMountain pipeline are doing so due to the production of greenhouse gases during the mining or in-situ processing of oil sands to make bitumen for export.

In September 2018, the Canadian Energy Pipeline Association (CEPA) released its 2018 Transmission Pipeline Industry Performance Report, highlighting how association members are performing in the areas of safety, the environment and socio-economic priorities. CEPA outlines the total kilometres of CEPA member pipelines in Canada as 117,800 km – the equivalent of three times around the world. They claim 1.4 billion barrels of Canadian crude oil were delivered safely in 2017, as was 5.7 trillion cubic feet of natural gas. While the number of significant incidents has trended down over the past five years, there was an increase to three significant incidents in 2017 from one in 2016.

Two involved liquids pipelines and one involved a natural gas pipeline. Incidents resulted in 7,447 barrels of oil being released — all recovered except for 51 barrels (which were finally remediated) — and the release of 2.8 million cubic feet of natural gas, which dissipated into the air. The organization says that the main causes of pipeline incidents come from metal loss (reduction of the thickness of a pipe due to corrosion or erosion) or materials, manufacturing or construction defects. CEPA notes that cracking or incidents related to weather or third party line strikes can also have an impact. CEPA members invested $22.2 million in innovative technology in 2017, focused on reducing pipeline corrosion and improving pipeline inspection, leak detection and damage prevention.

Of those who have done detailed studies of pipeline incidents, Sean Kheraj, an associate professor of Canadian and environmental history in the Department of History at York University in Toronto has done considerable work studying oil spills in Alberta. It’s worth noting that the Alberta provincial energy regulator’s work covers high pressure oil and gas pipelines that operate solely within Alberta’s border. The Alberta Energy Regulator (AER) regulates more than 422,000 km of oil and gas pipelines throughout Alberta.

Kheraj’s work reveals that between 1990 and 2010 there were 6,416 Alberta pipeline failures that released liquid hydrocarbons. In 2010 alone there were 20 crude oil pipeline failures and 241 “multi-phase” pipeline failures — meaning those carrying both crude oil and gas. That means a crude oil spill happens every 18 days and a multi-phase spill every 1.4 days, he concluded.

New technology offers promise of transporting Alberta oil safely

New technology continues to offer improved safety outcomes around the transportation of Alberta bitumen. In May 2018, Sherritt International Corporation announced that its Alberta-based Technologies division successfully completed a pilot-scale demonstration of a proprietary process to upgrade bitumen. The process has the ability to eliminate the need for addition of diluent, a high-cost thinning agent that reduces heavy oil viscosity, which would reduce shipping costs and improve pipeline capacity. Sherritt’s innovative process to upgrade bitumen is based on more than 60 years of experience developing hydrometallurgical processes and the use of autoclaves, and stems from research previously conducted by Sherritt in the area of coal liquefaction. The process is based on the use of reactor technology that involves combining hydrogen with bitumen under pressure at high temperature in the presence of a proprietary catalyst suspended through mechanical agitation.

The addition of diluent to bitumen for transportation though pipelines is estimated to cost Alberta producers more than US$6 billion annually. Numerous studies on the partial upgrading of bitumen shows potential benefits such as eliminating high-cost diluent, alleviating pipeline constraints, and increasing the value of crude oil to refiners, and reducing emissions. According to the University of Calgary’s School of Public Policy, the value of partial upgrading of bitumen is estimated at $10 to $15 per barrel of bitumen.

In a similar vein, CN Rail is moving ahead with its pilot project to increase the safety of crude oil shipped by rail. CN holds the patent for a technology dubbed CanaPux. The trademarked name refers to rectangular packages using polymer plastic to solidify and encase the heavy oil. “We’ve taken heavy oil, or bitumen, and we’ve discovered a process to convert it rapidly and reproducibly into pellets,” Ian Gates, the professor leading the research, told CBC News in September 2017.

It appears that Canapux could alleviate many of the risks involved with moving tar sands oil by rail. The research teams says this product floats in water, does not pose a fire and explosion risk like the diluted bitumen currently moved in rail tank cars, and would eliminate air quality issues related to the volatile components of diluted bitumen. The solidified bitumen could be moved in the type of open rail cars used for coal, eliminating most of the risk found with bitumen and oil tanker cars. Still, CN makes clear that the company is in the early stages of developing the product and has not yet confirmed many of its expectations about how the product would act in the environment. If the CanaPux technology pans out, it appears to be a vast improvement in the tar sands-by-rail industry on multiple fronts, namely, the safety of communities along the train tracks and the reduced environmental impacts from derailments, not to mention the considerably reduced risks associated with marine transportation, if the technology should be used to ship heavy oil to overseas markets.

The Canapux project is moving to a high-volume test phase this year with a pilot plant in Calgary.