Two major disasters – one natural, the other industrial – highlight the critical importance of petroleum transportation safety.
By Peter
McKenzie-Brown
A railway connected
the worst natural disaster in Alberta since the Great Depression and, in
Québec, Canada’s worst industrial disaster since the sinking of the semi-submersible
Ocean Ranger on the Grand Banks in 19823. While many were still grieving in
both provinces, policy-makers were hearing calls for sensible transportation
policy – in the interest of public safety, but also in the interest of making
Canadian exports more competitive.
Many people first
heard the news of this year’s great flood from emergency broadcasts, as radio stations
interrupted their regular programming with alerts that a sour gas leak in
Turner Valley, near Calgary, presented a danger to the public. What began with
a rainstorm soon became a national wake-up call about the inherent risks of
hydrocarbon transport.
Torrents of water
had scoured the pipelines, and a fracture in a Turner Valley line released a
potentially dangerous amount of hydrogen sulphide. The operator quickly shut in
the source, but the rains continued. Within days, Calgary and nearby communities
found themselves inundated, with water damage that few people in the region had
ever experienced.
Clint Tippett – a professional
geologist who also serves as president of the Petroleum History Society –
expressed surprise that there haven’t been more pipeline ruptures in Alberta. “Many
trunk lines (and field lines) run more or less north-south while the rivers are
more like east-west,” he said. “This crossing pattern means that large volumes
of oil and gas are flowing under river courses where they are prone to being
scoured out and broken. I think this is what happened to ExxonMobil on the
Yellowstone River in Montana a while ago. Even if shut-in during an event,
there are still small volumes in the lines under the rivers and, if broken,
there is a longer term fix required.” That was one lesson from the flood. Others
related to hydrocarbon transportation quickly followed.
The flood was
hardly the first to hit Calgary: the Glenbow Museum has 120 archival photos of
vast Calgary floods, dating back to 1897[1], and
prompt evacuation by provincial authorities kept the death toll down to four.
However, many others lost homes, businesses, vehicles and other private
property. An early estimate from BMO Capital Markets estimated the cost of
these losses as ranging from $3-$5 billion. The outpouring of selfless courage
and support from friends, neighbours and strangers was a partial offset.
Many petroleum
people saw the disaster first hand. Take Cam Moore, for example. He’s president
of the geophysical contractors’ association. “[My wife and I] worked hard to
hook up generators and pumps to keep flood waters back and [our subdivision in
High River] had a really effective emergency response plan,” he said in an
email. “By Sunday, water had receded significantly and we were actually able to
drive out of our neighborhood which had been completed surrounded by raging
water.
“As we drove
through town, I can’t begin to describe what I saw,” he continued. “There was total
devastation and destruction everywhere we looked. Think apocalypse. Tanks,
helicopters and emergency vehicles [were] everywhere. It was as close to a war
zone as I have ever been. Our town is destroyed and our community knocked down
to its very core….We cried uncontrollably as we left…wondering if we would ever
see our friends and neighbours again.”
Impact on Industry
For the petroleum
sector, the effects of the disaster reached at least as far as the Northwest
Territories. “We are working on a project in the central Mackenzie valley,”
says a company source who requested anonymity. “The timing is very tight.
Unfortunately, operations up there can occur only in a short winter window so
if you are at a critical point and are delayed, the consequence is potentially
missing an entire year. To make a long story short, one of our key staff
members on the project lives in [the Mission district of Calgary] and had to
rush home in response to the disaster. This delay may prove fatal to our hopes
of getting some preliminary work done up there this summer which will, in turn,
preclude us from moving forward on a drilling program next winter. So in this
case it isn’t just a matter of pushing things a few weeks or months – it can involve
much bigger chunks of time. It’s sort of like missing the bus and having to
wait until the next one comes along.”
Another anonymous
source observes that the federal tax authorities were almost unique in
providing ham-handed, dunderheaded guidance. At the end of June, when the flood
was at full crest and most buildings downtown were without power and other
utilities, the CRA sent a note to oil industry taxation people saying that,
though corporate taxes were due on July 2nd, ‘any taxpayer that misses a filing
deadline that is attributable to the flooding can request a waiver of any penalties
and/or interest to the Tax Services Branch of the TRA.” Large legal and
accounting firms protested loudly, of course, and the feds extended the
deadline by a month.
The flood of 2013
demonstrated the effectiveness of corporate “continuity plans” to protect
assets from natural disaster in case of head office catastrophe. Backup systems
involving remote control rooms, offsite data and automated shut-off valves
proved their worth when Enbridge shut down pipelines as a safety measure.
Of course, in strictly
economic terms the time-value of shut-in production is lost forever, and the
production itself won’t be fully recovered until the reservoirs involved have
been fully depleted – decades from now, in the case of many oilsands projects.
In strictly economic
terms, most of the needed spending on recovery will be non-productive. Like
Japan’s response to the 2011 tsunami, economic activity related to rebuilding
is measurable as a boost to GDP, but amounts to spending money on restoring
things to what they used to be. Todd Hirsch, an economist with Calgary-based
ATB Financial, calls this phenomenon the GDP paradox. “Why is it that natural
disasters (which are plainly bad) can boost the GDP (which is perceived as
good)?” he asks. “The lift in economic activity that sometimes follows a
disaster underscores why the gross domestic product is not a good indicator of
societal welfare.”
A Little Help from Friends
Of course, as a
world-leading petroleum and agricultural centre, Alberta was able to bring a
large and diverse assembly of equipment to bear during the crisis. Early in the
crisis, a combine evacuated people from High River in the early days of the
emergency. Later on, specialized oil and gas equipment came to the rescue. For
example, a Red Deer-based outfit named Rusch Equipment brought down four high-volume
pumps capable of moving up to 7,000 litres per minute into Calgary to help
clean up the mess in the badly hit neighbourhood of Sunnyside.
“We went down
originally to Sunnyside and then we split off another crew to go to Elboya,”
according to the company’s Jason Hamer. “Our pumps could move eight m³ of water
per minute, and each crew involved three guys and two pumps. We originally
thought we were going there to pump out basements. But when we got there,
people were basically pumping out their basements onto streets which are
already flooded, and so the water was just going right back in. They were not
getting anywhere. So we used our equipment to pump water off the streets and
back into the river. This enabled people to pump out their basements.”
Was he using
fracking pumps? “No; they are six-inch water pumps we use to transfer water
before we begin fracking.” Rusch didn’t get paid for the five days his company
helped out – the work was strictly voluntary. “A guy we work for – Chris Buckman;
he has a company called Ignite Frack Services – called us and asked us to come
on down and help. His company had brought out some really powerful heaters and
they wanted to dry out basements once the water was removed. We had our
manpower in place and the equipment was ready to go, so down we came. We had
six trucks, four of them loaded with pumps. The other two hauled flatbeds
loaded with hose. The entire convoy was about two city blocks long.” Like
others, he said “It was very gratifying what we did, and all the guys are
really proud.”
According to the
history society’s Tippett, one lesson from the disaster is “just how
interconnected we’ve made ourselves with water, sewage, electricity, digital
communications, and so on. If one thing goes down, the whole setup is brought
to a screeching halt. [My company’s] building, for example, sustained no damage
but was shut down because it relies on the electrical grid, sewage treatment
and so on. Even remote locations can be impacted if they depend on something in
the impacted area.”
He adds that the
availability of interconnectivity has a positive side, of course. “We saw a lot
of people working from home due to digital communications which has allowed
some aspects of our work to continue forward,” Tippett said. However, “not
everyone is equally plugged in. Lugging around a laptop is not mandatory and
many people do not have Blackberrys or I-phones – so they are still effectively
in the Dark Ages when the normal way of operating breaks down. No one equips us
for the ‘what if” disaster scenario.”
Calgary may have the
biggest concentration of petroleum geologists in the world. In that context it
seems odd, according to Tippett, that the city has shown “so little geological
insight on flash flooding, given the concentration of river specialists in the
oil and gas industry, as related to ancient river deposits that are reservoirs
for oil and gas. However I think that we will also find in hindsight that there
were lots of studies about the Bow and Elbow Rivers – including their
historical behavior and previous floods – that were simply ignored. Building
went on regardless. This can be blamed on indifference but I think there is
also a somewhat darker theme here. Government does not want to disrupt the
economy in general and the plans of both developers and individual home owners
in particular by instituting proper flood plain management. I’m sure that
proposals to build bigger levees would always be shot down for budgetary
reasons.”
Tank Cars
Calgary was a
railway town when it was established in 1885, and the tracks now twist through
city centre. As the waters were approaching normal levels, a train rattled along
that network before crossing a century-old Canadian Pacific Railway bridge over
the Bow River. Six of its tankcars – five of them full of diluent headed to a
refinery in the US Midwest – derailed on a broken bridge over the swollen Bow
River. The cars perched perilously close to the water as emergency crews rushed
to prevent a spill. A volunteer crew of technical experts and others secured
the tankcars, emptied them and safely got them off the bridge.
There is a bigger
issue with respect to this heroically-averted disaster. Canadian oil pipelines
are full, yet production continues to grow. Until new pipelines are built and
older ones like TransMountain expanded, a burgeoning sector is becoming
increasingly reliant on rail transportation. Tankcars, which are susceptible to
derailment, are the only alternative for shipping hydrocarbons from Western
Canada to other markets. According to a recent Canadian Railway Association estimate,
as many as 140,000 carloads of crude oil will roll over the country’s tracks
this year. That number is up from only 500 carloads in 2009. And according to a
recent RBC Capital Markets report, without Keystone XL’s 830,000 barrels-a-day
capacity, Canada’s rail shipments of this oil will rise an additional 42
percent by 2017.
A week before the
floods, a Transportation Safety Board report called for a fail-safe stop
mechanism and video recorders on all trains plus a “higher crash-worthiness
standard.” For its part, the railway association bragged about lower accident
rates. Then came the calamity in Québec, in which a 73-tankcar train carrying crude
oil derailed in the small town of Lac Megantic. The flames from resulting
explosions destroyed much of the town’s core, and the fires burned for two days.
Scores of people lost their lives.
Surely the tankcar
episodes on the Bow River and in the Québec tragedy will reduce people’s trust
in the ability of regulators and firms to mitigate risks from transporting oil.
At issue is not the
source of the oil, but the mode of transportation. While the product in the tankcars
crossing the Bow were certainly of Western Canadian origin, the oil that
devastated the small Québec town most certainly was not. The oil in those
tankcars wasn’t from Western Canada. As ARC Energy’s Peter Tertzakian explained
in a research note, most of the oil in Eastern Canada arrives in eastern ports from
fields in the North Sea, Middle East and West Africa.”
Soon enough, according
to Tertzakian, Canadians “will turn to policymakers and corporate leaders to
address specific issues of transportation safety, pipes versus railcars, and
the broader issue of social license to pump more petroleum,” rather than
shipping it by rail. One legacy of this tragedy will be years of grieving by the
people of Lac Megantic. A fitting longer-term outcome would be transportation
policy which put the brakes on the rail transport of petroleum products.
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