(Robert Campbell is a Reuters market analyst. The views
expressed are his own)
By Robert Campbell
NEW YORK, March 28 The derailment of a Canadian
Pacific Railroad train transporting crude oil in Minnesota this
week underscores the policy risks inherent in delaying the
Keystone XL pipeline amid unfettered growth in rail shipments of
Although the incident has resulted in only a small spill in
a rural area, accidents involving crude oil being shipped by
trains are inevitable, and, according to safety data, likely to
be more frequent than spills from pipelines.
This is the key point. Any method of moving oil from point A
to point B involves risks and accidents are inevitable. A
coherent approach to resource development would rationally weigh
these risks and seek an optimal balance of risk, cost and
This has not been the approach chosen. Rather, a haphazard
process that has seen largely unregulated oil movements by train
spring up from nothing while a minority of pipeline projects are
subjected to a regulatory process of immense complexity and
As a result the Keystone XL pipeline has been in regulatory
limbo for years while existing pipelines, including major
conduits for oil sands crude, have sailed through much
lighter-touch reviews of their own expansion plans.
Meanwhile rail shipments, many of which must pass through
built up areas, have received even less scrutiny. Despite the
industry's safety record there will be more accidents and more
oil spilled from trains.
The upshot is that the North American oil industry faces the
possibility that a sudden backlash against moving oil by rail
snarls the logistics of the continental energy system.
Certainly this is not to say oil movements by rail should be
halted or even reduced. While the accident rate when compared
with pipelines is higher, it is hardly the case that oil tank
cars are flying off the rails with an alarming frequency.
But what the Keystone XL saga has underscored is that high
profile projects or incidents attract a disproportionate amount
It is not hard to imagine the chaos that might ensue if a
crude oil unit train was to derail in the metropolitan Chicago
area, a key bottleneck for many shipments from North Dakota.
And given that rail movements out of Cushing, Oklahoma are
having a direct impact on the price of West Texas Intermediate
crude oil, close scrutiny of oil movements on trains could well
have a significant impact on global oil prices.
Although volumes of crude moving out of Oklahoma are
unclear, estimates peg shipments at anywhere from 50,000 to
100,000 barrels per day. Some of this oil is coming from shale
fields in Western Oklahoma. But a large chunk of this figure
represents unit trains at Stroud, Oklahoma being filled with
crude taken directly from the tank farms at Cushing.
A more coherent approach to the challenges of remaking the
North American oil logistics system would be a major improvement
on the current situation and would ease a risk for traders.
On balance it is a good thing that oil movements by rail are
on the rise.
By allowing more rapid development of frontier crude oil
deposits, North America as a whole is probably a considerable
beneficiary through jobs and a faster increase in domestic
But rail shipments are also more risky, more expensive and
more energy intensive. It is hard to square these facts with the
stated desire of most people for cheaper, cleaner energy.
Public policy that aims for cheaper and cleaner energy must
ultimately come down in support of pipelines and their
(Editing by Kenneth Barry)