Monday, September 09, 2013

A Railway Runs Through It

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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