Pipelines aren't the only way to ship oil – rail's on the rise

What do melting sea ice, fiery train wrecks and the Bakken oil boom have in common?

No, they’re not part of the latest Hollywood blockbuster – although if I came across a trailer showing George Clooney as a roughneck leaping from a flaming train onto an ice floe with an angry polar bear, you better believe I’d watch it.

The answer is less exciting, but more important: All three factor into a Denver company’s plan to ship crude oil from the Bakken oil fields in Saskatchewan to a northern Manitoba port via railroad. Colorado-based Omnitrax, one of North America’s largest private rail companies, hopes to bring more than 2 million barrels of oil annually from Saskatchewan to the Port of Churchill in Hudson Bay along existing railroad tracks, starting as soon as 2015.

Similar but unrelated plans are on track to ship tar sands oil from Alberta to coastal British Columbia by rail, as well as crude from North Dakota to Oregon and Washington. Across North America, the number of railcars shipping oil has grown from almost zero in 2009 to a projected 150,000 in Canada and more than 700,000 in the U.S. this year. About70 percent of North Dakota oil now moves by train, destined for refineries around the U.S. As energy strategist Julius Walker told Bloomberg, “This is a revolutionary change in crude oil logistics that has rarely happened before.”

North Dakota oil-by-rail increase, June 2008 to Aug. 2013, ’August 2013 Production and Transportation Monthly Report,’ from the North Dakota Pipeline Authority, Oct. 15, 2013.

Despite the rapid expansion, most shipments go virtually unnoticed. Unlike pipelines, which require extensive permitting and environmental review, oil-by-rail requires little new infrastructure or permitting. Five years ago, it was adopted as a stop-gap measure while pipelines like Keystone XL and Northern Gateway were held up by environmental opposition. Soon, though, refiners realized that trains can provide a more flexible, less controversial shipping option without the hefty up-front investment of a new pipeline. Some refiners are even bypassing pipelines altogether: as Bloomberg BusinessWeekreported, the proposed “Freedom Pipeline” from West Texas to Los Angeles was abandoned this year in favor of moving the oil on existing railroads. 

The swift and unpredictable rise of oil-by-rail raises questions for transportation officials and environmentalists alike. In July, a train carrying Bakken crude in Quebec derailed and exploded, killing 47 people. The incident spurred a deeper look into the safety of the industry on both sides of the border, and it prompted questions about who should be responsible for preventing future accidents. Some petroleum analysts say crude is no more dangerous than gasoline, which is regularly shipped by train, but independent research from the Manhattan Institute shows that regardless of the type of fuel, pipelines are still the safest mode of transportation.

Though he doesn’t love the idea of new pipelines, Eric de Place, a policy director at the Sightline Institute, a Northwest sustainability think tank, says given the choice between two evils, he agrees that pipelines are less hazardous, both for people and the environment.

Few oil-by-rail projects in the U.S. have been as controversial as Omnitrax’s plan to transport crude to the Port of Churchill. There, thawing permafrost is already destabilizing sections of railroad track, causing Native tribes in the area to fear an oil spill if a train derails. And of course, there’s the irony that melting sea ice is what’s causing the Port of Churchill to become a viable oil port in the first place. Plus, the port is owned and operated entirely by Omnitrax, and is in the midst of the continent’s largest concentration of polar bears.

The idea of turning Churchill into an oil hub makes some environmentalists cringe, but it could be a financial boon for Canada. While the U.S. can’t legally export crude, Canada has no such restrictions. The Omnitrax project could launch the first commercial shipments of Western crude to European refineries, potentially at even lower prices than West Texas oil.

Omnitrax’s proposal has also raised some political hackles. The Denver company was caught up in scandal in 2003 after some of its U.S. lobbyists were caught bribing Canadian officials, and Omnitrax Canada has come under fire this year for hiring freshly-resigned Manitoba Parliamentary Conservative Merv Tweed as its new president. Critics worry that Tweed’s political connections in Manitoba could help usher his new company’s project through without adequate review.