Will Pipelines Make a Comeback After the Quebec Tragedy?

The derailment of a train carrying crude oil and its subsequent explosion in Quebec should act as an eye-opener to the opponents of pipeline transportation of crude oil. Additionally, in an ironic twist, the arguments used against the Keystone XL pipeline with regard to environmental concerns may be better applied to Saturday's tragedy.

Unstoppable
The deadly explosions that rocked Lac-Megantic in the early hours of Saturday virtually converted the small Quebec town into a "war zone," according to a firefighter. With five fatalities and about 40 more reported to be missing, fires continued to rage more than 24 hours after the incident, preventing investigators from immediately accessing what was left of the train. The apparently driverless train, owned by the Montreal, Maine & Atlantic Railway, hurtled down an incline into Lac-Megantic, causing crude oil to spill and four cars to explode. The burning oil is reported to have leaked into sewers and jetted through manholes, setting buildings and trees ablaze. Many people in the town were still unaccounted for.

Beyond environmental concerns, rail transport of crude oil actually brings into the purview questions on human safety. It's absurd to expect railway tracks to always run through no-man's land. There will be obvious instances when these tracks will run through towns and other places of human civilization. Simply put, a disaster of this magnitude makes a mockery of frivolous concerns regarding pipeline safety.

Now, about the environment ...
As far as the spill itself, things don't look too rosy, either. A rough calculation suggests that the 73-car train could have been carrying anything between 44,000 and 50,000 barrels of crude. That's a pretty large amount of oil to take a spill. While some of the oil has dripped into the Chaudiere River, the impact is assessed to be minimal. But that might not necessarily be true regarding the damage to the atmosphere caused by the burning fuel. The environmental damage caused to Lac-Megantic -- with multiple buildings and trees ablaze -- will be much greater than just what a pipeline spill may have caused.

This isn't the first spill to take place this year when it comes to railroad transport. Last March, a minor spill occurred very near to the Penobscot River. Is it any surprise that the number of such incidents is on the rise? Not when we realize that crude oil transport has increased from 5,000 carloads in 2011 to an estimated 65,000 carloads in 2013, according to the Railway Association of Canada. That's a whopping 1,300% increase in just two years.

While TransCanada's (NYSE: TRP  ) Keystone XL pipeline has seen its share of controversy, the British Columbia government has formally opposed Enbridge's (NYSE: ENB  ) Northern Gateway pipeline from Kitmat to Edmonton. This 1,177-kilometer pipeline is expected to transport 525,000 barrels of oil per day.

An appropriate reaction?
The market's reaction to railroad companies hasn't been favorable. Canadian National Railway (NYSE: CNI  ) (NYSE: CNI  ) traded down today by 0.6%, while Union Pacific (NYSE: UNP  ) (NYSE: UNP  ) lost more than 0.7% of its market value. Clearly, the markets took Saturday's accident seriously. However, with so much crude oil ready for cross-country trips, railroad companies are unlikely to be affected in the grander scheme of things, at least in the near term.

Foolish thoughts
Clearly, a railroad oil spill has far more devastating consequences compared with a pipeline spill. Additionally, a recent study by the U.S. National Academy of Sciences concluded that diluted bitumen flowing through the Keystone XL pipeline would not contribute to more pipeline corrosion compared with conventional heavy crude. Pipelines definitely have a strong case going forward.

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