Photo credit: Flickr/tarsandsaction

The hotly contested Keystone XL pipeline that TransCanada (NYSE:TRP) is proposing to build just took another interesting turn. An updated analysis from the Department of State now estimates that injuries and deaths caused by not approving the pipeline are four-times higher than previously thought. This revised analysis is due to the fact that the oil earmarked for the Keystone XL will end up being transported by rail. The issue is that transporting oil by rail is becoming a more explosive risk than anyone previously expected.

A significant revision
An initial assessment of TransCanada's Keystone XL pipeline estimated that moving the oil earmarked for that pipeline by rail would contribute to 700 injuries and 92 deaths over the next 10 years. However, given the rash of rail incidents, as well as an erroneous database search, the government updated its numbers and raised estimates fourfold. Now, the State Department estimates that rail transportation could lead to 2,947 injuries and 434 deaths in the next decade.

So far America has been lucky in that the recent oil train derailments haven't caused any significant injuries. The most recent derailment in Lynchburg, Virginia only resulted in 350 people being evacuated from the downtown river district near the spill. Overall, 30,000 gallons of oil spilled into the James River but the resulting explosion was far enough away that it didn't cause any harm. However, as Canada experienced last year, these trail derailments can have tragic consequences as the town of Lac-Megantic in Quebec lost 47 people after an oil train derailed and exploded in the center of town. While the State Department isn't saying such a disaster is a certainty, the possibility increases as more oil heads onto America's rail system. 

Ripple effect
What will be interesting to see is if these revisions to the Keystone XL pipeline casualty assessment have any ripple effects within the industry. The Keystone XL pipeline isn't the only project that's being opposed by environmentalists, which is resulting in more oil heading onto North America's railways. For example, Kinder Morgan (NYSE:KMI) and its Kinder Morgan Energy Partners (NYSE: KMP) subsidiary are proposing to expand the Trans Mountain pipeline in Canada to triple its capacity. That project, however, has come under intense pressure as there are worries that the pipeline could leak and cause untold environmental harm.

Photo credit: Kinder Morgan

What's intriguing about the whole situation is the fact that most environmentalists oppose developing the oil sands in general because it's a more carbon intensive energy supply. The idea is that by protesting the pipelines they can impact the project economics of the oil sands to such a degree that these projects become uneconomical. However, the industry has found that rail can be economical enough that most oil sands projects are still moving forward. That's creating quite a dilemma for environmentalists as they now will need to weigh the potential environmental cost of an oil train leak in an environmentally sensitive area with the growing concern of an explosive train derailment in the center of town.

Investor takeaway
As more oil train disasters occur it could have a ripple effect and turn public opinion back into supporting these projects. This would enable Kinder Morgan and Kinder Energy Partners to finally move forward on the $5.4 billion Trans Mountain pipeline expansion project and even enable TransCanada's Keystone XL pipeline to finally be approved. However, the hope is that just the increased risk of a tragedy is enough to move forward with these critical projects and that it doesn't take a repeat of Lac-Megantic in a small American town to get these pipelines built.