No Pipelines?: Brace for Rail & Prepare for Increased Public Engagement

One might have one believe that if Canada and the United States blocks the construction of pipelines, Canada’s oil will stay in the ground. That is simply false.

There is demand for oil around the world. Current market fundamentals and demand suggest that the crude oil business will grow well beyond current levels. Governments and oil companies globally will continue to extract oil, and if there is restricted pipeline capacity, oil companies will move oil by rail or truck. Today, the wider use of Canadian tar sands oil is currently impeded by serious transport bottlenecks and pipeline delays and with the current and projected increases in shipments of oil by rail, oil companies should brace for public resistance on crude-by-rail (CBR) and prepare for increased public engagement.

Is saying 'No' to a pipeline saying 'Yes' to rail ? .....  Apparently not.

If history records 2012 as the year when modern crude-by-rail came into its own, 2013 is remembered as a time of a nearly two-fold increase in that business. But the rate at which that traffic has risen in just in the past two years, and the projections for its continued growth, are unlike anything that energy producers, railroads, or investors have seen before. Crude by rail is not entirely new. What is new is the sudden enormous scale of volume and distance – and increased public opinion that was more typically reserved for the pipelines debate.

This overall spike in North American crude-by-rail over the past few years has been well documented, and recent reports released last month include those by clean energy advocacy organizations such as the Sightline Institute's report covering crude by rail in the U.S.A. Pacific Northwest (PNW) states of Oregon and Washington. The report states that the PNW are facing a quadrupling of their crude-by-rail terminal capacity, to over a million barrels a day. Oil Change International in 2014 issued a broad report about the crude-by-rail trend. As explained in Runaway Train: The Reckless Expansion of Crude-by-Rail in North America, much of the oil train growth has been driven by the Bakken shale oil boom. Without sufficient pipeline capacity in the area, drillers have been loading up much more versatile trains to cart the light, sweet tight crude to refineries in the Gulf, and on both USA coasts. About 759,000 barrels of crude oil move every day by rail in the USA. The Energy Information Agency (EIA) attributes that growth to the increased oil production in the Bakken fields where restricted pipeline capacity means 60% to 70% of the product must move by rail. Crude oil-by-rail infrastructure is by no means restricted to serving the Bakken oil fields; it also can and will act as a vehicle for transporting bitumen from the Canadian oil sands.

 A New Era of Crude Oil Transport

December 2013, the first full train carrying tar sands crude left the Canexus Bruderheim terminal outside of Edmonton, Alberta, bound for an unloading terminal in the United States.

Canadian heavy crude, as the tar sands is labeled for market purposes, had ridden the rails in very limited capacity in years previous. It was loaded into tank cars and bundled with other products as part of so-called “manifest” shipments. But to the best of industry analysts’ knowledge, never before had a full 100-plus car train (aka “unit train”) been shipped entirely full of tar sands crude.

Because unit trains travel more quickly, carry higher volumes of crude and cost the shipper less per barrel to operate than the manifest alternative, this first shipment from the Canexus Bruderheim terminal signaled the start of yet another crude-by-rail era.

Canadian Pacific and CN deliver crude to terminals in the U.S. as well as Canada, and they are hauling it from two distinctly different sources: Bakken shale and the oil sands. In the last quarter of 2013 in Canada, growth in oil by rail was 83% over 2012 according to the National Energy Board. That’s about 146,000 barrels of crude every day. The Canadian Association of Petroleum Producers estimates that oil by rail will triple in the next two years due to pipeline constraints, reaching about 700,000 barrels per day by 2016. Rail projects now being planned could accommodate up to 1.4 million barrels per day.

According to AVHENG ‘s Western Canadian Operators’ Market Report (Crude-by-Rail Update – Q2 2015), “it appears no new proposed CBR terminals are proceeding in Western Canada, some operators, including Torq Transloading, Altex, and Gibson Petroleum, are completing terminal expansions. However, Gibson is the only major company with a publicly announced commencement date for later this year.” To crude producers hankering for a route to market while pipeline proposals stall, a bevy of crude-by-rail projects planned on the U.S. West Coast may look enticing.

What sets Canada apart from the U.S. is export policy. Since the OPEC energy crisis of the 1970s, the U.S. has banned nearly all crude exports (with limited exceptions for crude from Alaska and California) to all countries except Canada. The oil industry and others are now lobbying for a repeal of that ban. For now, railroads can only deliver U.S. crude to refineries and distribution terminals in the U.S. or Canada. CBR originating in Canada, however, can be moved directly to export docks.  

Locomotives pulling a hundred uniformly black tanker cars first rolled to the shores of the U.S.A. Northwest coast in September 2012 bearing crude oil from North Dakota, and its arrival heralded a new era for the region’s place in the global energy economy, one in which the Northwest could become a major oil transport hub.

Today, oil companies are planning, building, or already operating 15 crude-oil-by-rail projects in British Columbia, Oregon, and Washington. The destinations include all six Northwest refineries, as well as nine port terminals. If all of them are built, they would be capable of delivering more than a million barrels of oil per day, a figure that far exceeds the region’s total oil refining capacity. Taken together, Northwest oil-by-rail projects would have a much larger capacity than the controversial Keystone XL Pipeline.

After the Lac-Mégantic disaster, the U.S. and Canadian governments worked with North America’s rail industry to identify and prioritize the risk of using dated tanker cars for transport of flammable liquids. In May 2015, the U.S. and Canada agreed to harmonize a new set of rules for flammable liquids transport by rail, including crude oil and ethanol. As of October 1, 2015, all newly constructed CBR tanker cars must meet design or performance criteria for the new TC 117 standard. The U.S. and Canada have also agreed to pursue other changes, including limiting velocity of trains carrying flammable liquids through cities and towns.

After Oil, Natural Gas May Be Next on the Rails

As politicians, First Nations and public debate the dangers of a massive increase in oil carried by rail in North America, railroads and energy producers are considering the same for natural gas (most likely as cryogenic liquefied natural gas (LNG), currently classed as an uncertified fuel on USA and Canada’s rails). Buoyed by the unexpected success of crude by rail, companies are beginning to consider transporting natural gas as remote drilling frontiers emerge beyond the reach of pipelines.

 Steps have already been taken such as Warren Buffet’s BNSF Railway (whom today already carries up to 70 percent of all the crude-by-rail traffic in North America) is testing LNG-powered locomotives and million-dollar tank cars that would hold the fuel, the first step in a plan announced last year to wean trains off costly diesel. USA regulators and railroads last year established a task force to establish standards for LNG rail cars.  Outside North America, Chart is developing an LNG tank car in Germany in a joint venture with Hamburg-based manufacturer VTG Aktiengesellschaft. Japan Petroleum Exploration Co. began transporting LNG by train in 2000 by loading specially designed tanks onto railcars, supplying local distributors in regions beyond the reach of gas pipelines. The company says the trains have proven cheaper than trucks in supplying LNG.

Natural gas by rail is years away and likely to face strong public resistance on safety after a series of explosive crude-by-rail accidents and varying opinions on more-volatile liquids like ethylene and propane already traveling on the rails in growing volumes.  One can only imagine the amount of push-back there would be on transporting gas by rail.

More Than A Spark: The Extra Pressure

Public focus on safety and environmental incidents in the North American energy sector has increased dramatically in recent years. A string of high profile derailments, spills, earthquakes, and explosions has raised widespread concern about the risks from LNG tankers and hydraulic fracturing to moving large volumes of crude oil by rail.

Crude-by-rail made even bigger headlines following accidents in which tank cars carrying crude exploded or caught fire, following derailments, all of which were from different causes. Oil transport by rail became a contentious topic after a train containing crude oil derailed and exploded in Lac-Mégantic, Que., in July 2013, tragically killing 47 people. Another train exploded, without injuries, last month in North Dakota. The Quebec tragedy led to an increase in public awareness and concern over shipping crude oil by rail as subsequent media reports, social media chatter and government investigations focused attention on the rapid growth in oil shipments.

Statistically, these recent incidents were an anomaly when compared with U.S.A. Department of Transportation figures cited by the AAR. U.S.A. railroads had fewer than 150 incidents during 2002-2012 involving releases of crude, with 2,300 barrels spilled. U.S. pipelines during that same 10 -year period had 1,785 incidents, which spilled an estimated 474,000 barrels. A single pipeline leak this past September went unnoticed for days and spilled some 21,000 barrels of crude across seven acres of a North Dakota wheat field.

This public focus on safety and environmental incidents has manifested itself in increased scrutiny of crude-by-rail, pipelines, tankers, projects and operations by governments, regulators, landowners, the media, shareholders, local communities, NGOs, Aboriginal and First Nations communities and the general public. In some instances it has also manifested itself in organized opposition campaigns against specific projects or activities, affecting the business and reputation of companies such as last summers oil train blockade at Tesoro’s oil refinery  in northwest WA state, Kinder Morgan and Enbridge.

Last summer, Socialist Alternative’s 2,000+ person ‘common purpose’ march ended with over 300 people successfully blockading an oil train engine. This summer 2014 protest involved almost every environmental and social justice group in Seattle participating, including Idle No More, 350.org, the Green Party, Divest University of Washington, Seattle University, the Sierra Club, Rising Tide, and more. Even NGOs that don’t normally mobilize for such events did so.

Energy companies are trying to make the Pacific NorthWest region the U.S.A’s next major oil export hub, but they too have faced increasing pushback from the public and communities as we have experienced in Canada. Protests have included fossil fuel divestment campaigns, rallies, and the dramatic efforts to stall Royal Dutch Shell's Arctic-bound ships (Greenpeace was slapped a $2500 per hour fine, rising to $10,000 / hour, for every hour Greenpeace activists blocked the ship), blockades by kayaktivists in Seattle and activists dangling off the St. John's bridge in Portland.

Activists protest oil trains in Seattle, Wash. (Credit: Backbone Campaign)

As concerns grow, a movement against new crude train infrastructure has emerged. This has "paced" if not slowed progress in rail transport of fuels. Citizens, First Nations/Aboriginals and local governments across North America are taking action to oppose crude trains passing through their communities and to fight against new or expanded terminals in their midst. Crude by rail has been a lesson not only in how quickly a new transport can emerge, but also in ‘social risks and costs,’ environment and safety.

People view significant oil spills and accidents as disasters. Disasters are complex, social, crisis situations which result in interrelated economic, social and psychological impacts on communities, organizations, families, and individuals. Researchers distinguish between natural (acts of God) and technological (human-caused) disasters. Floods, terrorism, and oil spills are considered disaster agents. Stakeholder and public engagement and risk communication methodologies are ways to help cultivate realistic expectations and develop consensus about response options, before, during, and after an incident.  Ironically, research on risk communications regarding the use of dispersants and their consequences for both ecological and human health has been sparse to date.

Public Engagement : Dialogue to Action

Public concern regarding the transportation of crude oil and petroleum products by rail has the potential to impact shareholder value, the company’s growth prospects and long-term expansion plans. Over the past years, dozens of plans have emerged to ship crude oil by train in Western Canada and Pacific Northwest to refineries and port terminals. Moving large quantities of oil by rail would be a major change for British Columbia and the Pacific Northwest’s energy economy, yet most media accounts present only a fragmented view of the proposed plans, developments, and the public evaluates the projects largely in isolation from one another.

The rise of social media further complicates matters, transforming the way much of the public gets its information and misinformation. Without effective traditional and non-traditional public engagement, negative perceptions of crude-by-rail can spread quickly, even without help from traditional media. With the widespread use of social media, stakeholders and the global public will express their concerns and objections about crude-by-rail risks and accidents; demand transparency and aggressive action during an incident to protect people and the environment, mitigate all impacts; and call to punish those responsible.  That said, going forward public participation in future oil spills and accidents ideally should have a purpose that benefits both the response and the public. 

The Deepwater Horizon (DWH) oil spill was also a pivotal moment in the expression of and reporting on stakeholder and public risk perceptions about oil spills, response options, and safety. Public engagement through both traditional and social media was arguably much higher than in prior spills. Strategic and proactive digital public engagement can be used to gain and maintain “social license” in order to achieve the goal of stakeholder and pubic understanding, agreement to, and pre-approval of industry’s CBR preparedness and response plans.

This increased focus on risks means that for oil companies to be successful, they must have a solid understanding of the public and stakeholders’ views and expectations. In order to achieve corporate responsibility and sustainability in a complex and evolving environment driven by the public and multi stakeholders’ interests, companies will have to become learning organizations that will be aware of and process a much wider range of information; thus, highlighting again the need for increased public engagement.

The current ad hoc approach to building public support for crude-by-rail is inadequate to the challenges ahead of us. Citizens-at-large and affected communities want, and are capable of, understanding more detailed information than conveyed in one-directional communications.  To date, there still exists an information gap, a lack of information exchange; which can be filled by companies becoming learners and designing effective public engagement strategies and plans. To be highly effective in addressing risk perceptions, the technical content of oil spill and accident communications needs to address the public, stakeholder and community understanding about oil composition, response options, fate, and effects processes.

Government licenses and permits to operate will always be required, but so is social trust. We recognize that earning and maintaining social trust means we must not only comply with regulatory requirements for stakeholder and community engagement, but must continually interact with our stakeholders and the public and respond to their input in ways that are credible and transparent. For this reason, many projects and operations will have to further customize public involvement and awareness plans that provide management systems, standards and accountabilities for ensuring that they know the public voice and their stakeholders, engage with them to understand their interests and perspectives, and respond appropriately to their concerns.

Increased communications and collaboration between oil companies, the public, stakeholders and affected communities can lead to shared objectives and improved information exchange. This is accomplished through traditional media, social media, websites, blogs, distributed networks and direct engagement to address emerging risk perceptions, questions, and concerns, especially about issues that spark social conflict. Dialogue is necessary to learn about the public, stakeholder and community risk perceptions associated with an incident, to assess the situation in relation to those perceptions, and then develop appropriate responses to their questions, concerns and perceptions.

With the intensifying debate on crude-by-rail comes public engagement opportunities to bridge gaps in information exchange as well as building trust to improve communications with oil spill stakeholders and the public that could lead to improved social acceptance, corporate reputations and response management going forward.

Energy companies need the legitimacy that comes with a fulsome and well-respected regulatory approval process as much as interveners need to have their concerns heard, respected and considered. Like generals fighting the last war, our captains of industry seem intent on adhering to past engagement strategies to get product to market and attain social trust. It worked before, so it must work again. Wrong.

Effective and innovative public engagement and crisis communications actions an oil company takes today, may facilitate novel ways to more effectively address new questions, concerns, and risk perceptions which are inevitably emerging in the crude-by-rail and accident response debates.

In the coming year, the geopolitical and environmental aspects of oil could weigh more heavily on railroads than ever before. The West is arguably where crude-by-rail’s star shines brightest. Oil companies need to be open to becoming learning organizations and move smart and fast-  spark up their public engagement and communications - start new dialogues, take action and gain social trust before the crude-by-rail debate really heats up and attainment of social approval is derailed.