Are Canadian Oil Sands More Prone to Disastrous Spills?

A lot of people don't look favorably on crude oil produced in Alberta's oil sands. In addition to the fact that oil sands production spews greater quantities of greenhouse gases into the atmosphere, some have voiced concerns about the physical and chemical properties of the oil.

That's because oil sands crude contains something called bitumen -- a thick, viscous substance that doesn't flow unless it's heated or diluted. For bitumen to be shipped by pipeline, it needs to be diluted with specialty chemicals to produce diluted bitumen, or "dilbit" crude.  

Some argue that dilbit crude is much more corrosive than other types of crude oil and that pipelines transporting it are more susceptible to leaks. But a new study by the National Research Council argues otherwise. Let's take a closer look.

Dilbit crude and leak risks
According to a committee of scientists reporting to the U.S. Department of Transportation, diluted bitumen doesn't pose a higher risk of leaks than other types of crude oil when transported by pipeline.

Scientists found no evidence that dilbit crude has physical or chemical properties that are materially different from that of other crude oils or that would make a pipeline transporting dilbut crude more susceptible to leaks, the NRC said.

The report, which came out June 25, confirms findings from a June hearing last year, in which crude oil transportation experts argued that dilbit upgraded from Canada's oil sands is physically and chemically similar to other varieties of sour crudes.

No mention of environmental impact
Importantly, however, the study focused mainly on whether transporting dilbit crude increased the risk of pipeline leaks. It didn't investigate whether the environmental impact of dilbit crude spills is more severe than spills involving other types of crude oil. Perhaps it should have, because what few examples exist indicate that the stuff is a real hassle to clean up.

Consider the rupture of an Enbridge (NYSE: ENB  ) pipeline, which discharged roughly a million gallons of bituminous crude into Michigan's Kalamazoo River in June 2010. Though three years have passed, the cleanup effort still isn't over. Enbridge employees and state and federal environmental crews continue to test the river, where sheen and clumps of oil still linger. The company reported a 4% year-over-year decrease in its first-quarter net income, partially because of the escalation of cleanup costs related to the spill, which are now approaching a whopping $1 billion.

Similarly, environmental damage from the rupture of an ExxonMobil (NYSE: XOM  ) pipeline carrying bituminous crude oil near Mayflower, Ark., has also been quite devastating, according to several local residents. Dozens of property owners and residents have sued Exxon, alleging that the spill has caused them numerous health problems, including nausea and headaches, as well as property damage and declines in property values.

In addition, Arkansas and federal officials filed a lawsuit against Exxon in June, alleging that the company violated numerous state and federal statutes, including Arkansas' Water and Air Pollution Control Act, its Hazardous Waste Management Act, and the federal Clean Water Act. Depending on the outcome of the case, Exxon could face civil fines ranging from $10,000 to $25,000 a day and federal Clean Water Act violation fines of up to $4,300 per barrel of oil spilled.  

Perhaps more worrying, though, is the alleged lack of transparency in the investigation of the spill's aftermath and cleanup efforts. In the weeks following the spill, several sources reported that the entire affected area was cordoned off and that some news reporters were rejected access to film and inspect the damage.

This strategy of downplaying the environmental impact of a major oil spill is quite reminiscent of what BP (NYSE: BP  ) did in the aftermath of the 2010 Gulf of Mexico oil spill, when former CEO Tony Hayward suggested that the spill was nothing more than a drop in the ocean. Three years later, the facts paint a different picture; the 2010 Gulf spill is widely regarded as the worst accidental oil spill in history.

The bottom line
All told, while the NRC studies results suggest that bituminous crude oil is no more prone to spills than other types of crude oil, it doesn't say anything about the environmental impact of dilbit crude spills. In my view, this is something that deserves further analysis.

While environmentalists and climate-change groups are sure to be dismayed by the study's results, the committee's findings are good news for TransCanada (NYSE: TRP  ) , which is seeking U.S. federal approval to construct the northern portion of its Keystone XL pipeline.

President Obama is widely expected to approve the pipeline this summer, though he added that he would greenlight the project only if  it "does not significantly exacerbate the problem of carbon pollution."

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Read/Post Comments (6) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 28, 2013, at 9:37 AM, cwon14 wrote:

    "Study" means "contrived" and biased attempt to influence the policy debate.

  • Report this Comment On July 28, 2013, at 10:29 AM, Funquang wrote:

    "President Obama is widely expected to approve the pipeline this summer, though he added that he would greenlight the project only if it "does not significantly exacerbate the problem of carbon pollution."

    Excuse me; where does mining the products to create the pipe, the machinery to install and maintain the pipeline, mining and pumping the tar sands that will flow through the pipeline, refining these tar sands, trucking the product to fuel stations and finally dispensing the fuel to be consumed not "exacerbate" the problem of carbon pollution?

  • Report this Comment On July 28, 2013, at 10:46 AM, Dadw5boys wrote:

    If those tar sands are so great why doesn't Canada want to refine it and ship it ? The EXPORT TAX FREE ZONE in Texas is where it's headed then to China for mostly Plastic.

    Some roofing tars and very little gas !

  • Report this Comment On July 28, 2013, at 10:47 AM, Dadw5boys wrote:

    How much Oil, Gas, Desiel and Heating oil is exported from the USA ????

    Tax exports and watch the price drop !

  • Report this Comment On July 28, 2013, at 11:45 AM, damilkman wrote:

    Well three problems. First it is practically impossible to build a new refinery due to regulations in both the US and Canada. Second, you still have to ship your refined product in a pipeline that would generate the same opposition. Lastly it is silly to refine a commodity where you extract it. That is about as silly as insisting that all iron ore should be refined into steal at the mine.

    The reality is there is tens of billions of refining infrastructure in the gulf region. It is silly to duplicate in a nonindustrial region. Your probably right a lot will probably go to China. Nothing wrong with that if it balances out our trade deficit.

  • Report this Comment On July 28, 2013, at 11:54 AM, RobertLB1 wrote:

    Canada has repeatedly turned down east and west pipelines on Canadian soil, so oil companies are trying to cram the Keystone pipeline down out throats. If oil pipelines are that great Canada would approve them.

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