Analysis: Canceled Keystone XL Pipeline Driving Major Safety Changes in Canadian Oil-by-Rail

Analysis: Canceled Keystone XL Pipeline Driving Major Safety Changes in Canadian Oil-by-Rail
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The Biden administration’s cancelation of the Keystone XL (KXL) pipeline in January appears to be driving a revolutionary improvement in Canadian oil-by-rail safety that could protect the public from what have become known as “bomb trains.

Without the KXL pipeline to help transport tar sands bitumen from Alberta to refineries in the United States, Canadian oil producers are turning to trains. And using a new technology to help make it more affordable — and less flammable.

When tar sands bitumen is mined and processed, it results in a thick, tarry substance which industry material safety data sheets note is a “low fire hazard” and “must be heated before ignition will occur.”

To ship tar sands oil by pipeline, however, the raw bitumen must be diluted with a light volatile petroleum product called condensate, which turns it into a “highly flammable” product, according to material data safety sheets. “This product,” the safety sheets state, “will easily ignite in the presence of heat sources, sparks, or flames.” This volatility is what causes devastating fires and explosions to happen so easily when oil trains derail.

Traditionally, the industry has chosen to pump this volatile diluted bitumen, or dilbit, into rail tank cars when shipping it by rail. But now the oil-by-rail industry is exploring a way to transport a form of bitumen that no longer easily ignites like the dilbit.

To do this, they’re investing in new technology that removes the flammable component of the diluted bitumen mixture before putting it into rail tank cars. The process is expected to make rail transport as affordable as sending bitumen via pipeline.

The first commercial application of this technology is being marketed as DRUbit and is a collaboration between Gibson Energy and US Development Group LLC that expects to begin operations in the second half of 2021. ConocoPhillips Canada has contracted to move 50,000 barrels per day and rail companies CP and Kansas City Southern will transport the product from Canada to the U.S. Gulf Coast.

DRUbit is a form of tar sands that is non-flammable and likely will not create large spills in derailments because raw or less-diluted bitumen doesn’t easily flow when exposed to air temperatures — effectively removing the risks to the public and environment from Canadian crude-by-rail transportation.

Currently, trains that transport the diluted bitumen mixture — which contains flammable petroleum — put the public at great risk. When these trains have derailed in the past, most have resulted in large oil spills and fires. It’s the reason why last year the industry trade publication Railway Age called these trains a “clear and present danger.”

But the great risk to the public posed by oil trains — as evidenced by the 47 people killed in the 2013 Bakken oil train disaster in Lac-Mégantic, Quebec — has never stopped both the U.S. and Canadian industry from embracing oil-by-rail or caused it to call for stronger regulations to protect the public. According to activist organization Stand, an estimated 25 million North Americans live and work in the potential blast zone of the rail networks that these oil trains use.

According to the Congressional Research Service, the cost of moving oil by rail can be as much as $10 per barrel more than pipeline transportation, effectively deterring the oil industry from moving more oil by rail and limiting the risk of explosions.

The new technological approach using DRUbit may help solve two of the thorniest issues that come with oil by rail: the higher cost of moving Canadian tar sands by rail and the tendency for oil trains to explode and catch fire during derailments. Meaning it could soon be cheaper — and safer — to transport oil by rail, at least for crude coming from Canada.

When DeSmog reached out to Canadian Pacific (CP), the rail company contracted to move the DRUbit from Canada to the U.S., for comment on the potential for increased safety, the company pointed to its 2019 press release on the new venture.

Keith Creel, CEO of CP, also highlighted the substantial benefits of this approach when the first project was announced in 2019.

From an innovation, sustainability, and safety perspective, this is a game changer,” said Creel. “This process removes diluent from the crude-by-rail supply chain, and as a result we end up moving a non-hazardous commodity.”

How It Works

The DRUbit project is based on the simple concept of a diluent recovery unit (DRU). This technology removes the volatile liquid chemicals used to dilute the thick, sticky bitumen, a component referred to as diluent. For most diluted bitumen (or “dilbit”), that diluent is a light petroleum product called condensate that, according to oil industry material data safety sheets, is highly volatile and “extremely flammable.”

The oil industry adds condensate to raw bitumen to reduce the viscosity so it can flow through pipelines. Raw bitumen can be “as hard as a hockey puck at 50 degrees F,” according to The Houston Chronicle. However, it can be made liquid by heating it, which is how it can be pumped in and out of rail tank cars.

Until now, the oil-by-rail industry just pumped dilbit — along with the flammable condensate — into train tank cars, creating a danger to the public and the trains’ operators. But with rail transport, bitumen doesn’t need to be diluted in order to flow like is required with pipelines; it’s possible to transport raw or less-diluted bitumen by rail.

But in the past, the industry didn’t remove the condensate because it was relying more on pipelines than rail, so there was little incentive to invest in the diluent recovery units necessary to remove dilbit’s volatile elements. As an 2013 article by RBN Energy explains, “the infrastructure needed to handle heavy crude requires investment.” With the past expectatations of future additional pipeline capacity, the industry never chose to make that investment — until now. 

When the KXL pipeline was canceled, the tar sands industry lost an additional 830,000 barrels of capacity for moving its product to market, prompting new investments in DRU facilities. Using the new DRUbit process, the condensate will be removed and the non-flammable bitumen will be heated and then loaded into rail tank cars.

The DRUbit project is expected to start loading 50,000 barrels per day sometime this summer, with the potential to eventually expand to 100,000 barrels per day. The trains would most likely be headed to a new facility in Port Arthur, Texas, operated by the energy infrastructure company, U.S. Development Group (USD). USD is backed by investment bank Goldman Sachs and has been involved in moving tar sands by rail since 2014.

On an earnings call this week, USD’s executive team was optimistic about the long-term potential of this new shipping method. They said the company is in talks with more Canadian oil producers to expand capacity for DRUbit operations in the future.

Canadian Pacific’s chief marketing officer John Brooks recently spelled out another benefit for rail companies that this project brings. “These DRU volumes will provide a safer pipeline-competitive option for shippers and will help to stabilize our crude business into the future,” Brooks said during a January earnings call.

The rail industry has been looking for new products to transport that can replace the big declines in the historically stable coal-by-rail market. The volume of exports from Canada have also historically changed rapidly with economic conditions. So, for the rail companies that had a challenging year in 2020, which are also dependent on the price of oil, the prospect of a new stable market opportunity is exciting.

If the claims that this DRUbit approach can achieve cost parity with shipping dilbit by pipeline prove to be accurate, more companies likely will explore this option too.

Cenovus, a major producer of tar sands, applied for permits in December 2019 to build a diluent recovery unit facility near Edmonton, Alberta, capable of processing over 190,000 barrels per day of diluted bitumen. While not using the proprietary DRUbit technology, Cenovus is effectively achieving the same results. The Alberta Energy Regulator (AER) told DeSmog that the permits were approved in July 2020 and that “The AER did not receive any statements of concern related to the applications.”

If Cenovus and USD both complete these projects, it would mean shippers could process almost 300,000 barrels per day of dilbit into non-flammable bitumen at rail loading facilities. According to the Canada Energy Regulator, Canada exported approximately 172,000 barrels per day of crude oil by rail in 2020, after reaching 280,000 barrels per day the previous year.

Graph: Canadian oil-by-rail exports to U.S. Credit: Energy Information Administration

The DRUbit and Cenovus projects could effectively replace all the existing Canadian oil-by-rail volumes while eliminating the risks to the public.

Clear and Present Danger Remains

In a Railway Age editorial published in 2015, the trade publication chastised regulators for not dealing with the volatility issue plaguing the North American oil-by-rail industry, asking why regulators were not addressing the solution that would be “obvious to the dullest high school chemistry student”: making the oil less flammable.

It was obvious over five years ago that oil trains burned and exploded when they derailed because their oil cargo was very volatile. To solve this issue, the industry would need to invest in technology to remove the volatile components — something easy for the industry to do, as Reuters reported, but which regulators refused to require.

Right now, the trains carrying Canadian tar sands are dangerous because the thick bitumen is diluted with the very light and volatile condensate to create dilbit. Meanwhile, trains carrying oil from North Dakota’s Bakken fields are dangerous because this oil contains a high percentage of natural gas liquids like butane and propane, which make the oil volatile and easily ignitable.

Regardless of the source of the oil, the results have been the same during rail accidents: Large spills, explosions, and fires that burn for days.

It now appears that what regulators have failed to do in order to protect the public, some in the Canadian oil industry will do on their own. Not because of a desire to protect those at risk during derailments but simply because it makes good business sense.

However, until this diluent recovery technology is embraced by all of the Canadian oil-by-rail industry, the very real risks of moving volatile dilbit-by-rail remain.

Some Good News As Regulators Continue to Fail the Public

As I recently wrote, to eliminate the risk of the bomb trains, the oil industry needs to reduce the volatility of the mixtures being moved. For light oils coming from the Bakken and other U.S. oil fields, that means “stabilizing” the oil by removing the natural gas liquids in the crude mixture. Stabilizing the light Bakken oil is a similar process to removing the condensate from Canadian dilbit: both involve heating the crude oil and removing the lightest volatile components. Regulators have failed to make the industry take this step and the public safety risk of Bakken bomb trains remains — as evidenced by a recent derailment and fire in Custer, Washington, at the end of last year.

In 2014, Canada’s Transportation Safety Board released its report on the deadly Lac-Mégantic disaster, which highlighted the failures of Transport Canada, the agency responsible for overseeing rail safety in the country, to protect the public. At the time, I summarized the report, saying, “… several critical factors stand out and they are the result of MMA [the railroad’s owner] putting profits ahead of safety and Transport Canada (TC), the Canadian regulators responsible for overseeing rail safety, failing to do its job.”

In February 2021, Canada’s Auditor General released a new report on Transport Canada, and the conclusions were that Transport Canada was unable to present evidence that it was improving rail safety.

As Auditor General Karen Hogan put it, she was “very concerned” that “eight years after our last audit, there is still very much left to do” regarding improving Canadian rail safety.

Meanwhile, in the United States last year, federal regulators stopped efforts led by the New York Attorney General’s office to require U.S. oil producers remove volatile natural gas liquids from Bakken and other light crudes before being shipped by rail in the state.

Regulators under the former Trump administration also overruled a 2019 Washington state law requiring this same approach for oil shipped by rail to Washington refineries.

U.S. oil companies have explicitly argued against such regulation because they say removing the natural gas liquids from the Bakken oil would reduce the price that refineries would be willing to pay for the oil. Meaning, the already financially troubled oil producers in the Bakken region would get even less money for the oil.

The current situation in Canada is promising because the oil industry now has economic incentive to remove the volatile component of the crude and condensate mixture.

In the U.S., however it will require regulators to make this happen because the industry currently has an economic incentive to ship volatile oil by rail from oil fields like the Bakken in North Dakota without first stabilizing the oil. One of the reliable markets for Bakken oil is the refineries in Washington state and the only way to get Bakken oil to those refineries is to use rail. The Bakken oil producers led the fight to overturn the Washington state rule that would have effectively required stabilization to reduce the volatility of the oil shipped by rail to Washington.

Thus far, the Biden administration has not announced any intention to address this issue. Until it does, the American public remains at risk from these dangerous trains.

In 2015, Rep. Jackie Speier (D-CA) testified at an oil-by-rail and pipeline safety hearing, saying, “The system is fundamentally broken.”

This latest development in safety in Canadian oil-by-rail transportation proves just how broken the regulatory system remains. It took economics to persuade the industry to adopt a simple solution regulators had failed to require.

Until the U.S. federal government takes steps to regulate the volatility of what gets transported by rail, in the future it’s likely the risks from Canadian crude oil trains, at least, will be greatly reduced and possibly eliminated.

Main image: Canadian oil train derailment in Gogama, Ontario. Credit: Screen capture of CBC News video.

Analysis: Canceled Keystone XL Pipeline Driving Major Safety Changes in Canadian Oil-by-Rail
Justin Mikulka is a freelance writer and audio and video producer living in New York. Justin has a degree in Civil and Environmental Engineering from Cornell University.

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