Understanding Government and Railroad Strategy for Crude Oil Transportation in North America
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NURail Project ID: NURail2012-MIT-R03 Transportation of Energy-Related Material Understanding Government and Railroad Strategy for Crude Oil Transportation in North America By S. Joel Carlson Supervised by Professor Joseph M. Sussman 9/30/2015 Grant Number: DTRT12-G-UTC18 2 DISCLAIMER The contents of this report reflect the views of the authors, who are responsible for the facts and the accuracy of the information presented herein. This document is disseminated under the sponsorship of the U.S. Department of Transportation’s University Transportation Centers Program, in the interest of information exchange. The U.S. Government assumes no liability for the contents or use thereof. 3 TECHNICAL SUMMARY Title Understanding Government and Railroad Strategy for Crude Oil Transportation in North America Author: S. Joel Carlson Introduction On July 6, 2013, an oil-laden unit train derailed and exploded in Lac-Mégantic, Quebec, Canada, killing 47 people, shocking and saddening many, and leading to significantly increased public scrutiny of crude oil transported by rail. Simultaneously, there has been intense scrutiny of proposed pipelines from the oil/tar sands in Alberta, most notably the TransCanada Keystone XL. Not only is there concern about the potential environmental impacts of the pipelines themselves, such as a potential spill of diluted bitumen, but there is also concern about the consequences of greenhouse gas emissions caused by the energy-intensiveness of bitumen production and refining. Proponents argue that a denial of pipeline permits by governments in Canada and the United States would lead to more crude by rail, an outcome that pipeline supporters believe would not only be less cost-effective, less safe, and less environmentally-friendly, but would also ultimately lead to the same amount of greenhouse gas being emitted from the production and refining of oil sands bitumen. Railroads, with much of the required infrastructure already in place to transport crude, usually do not need to undergo the same environmental assessments as pipelines for modest capacity expansions. As a result, when pipelines are evaluated through political and regulatory processes in Canada and the US, much of the focus is on what railroads might do if a pipeline permit is not approved, rather than what they should do. This research emphasizes the latter. Approach and Methodology 4 The CLIOS Process, an approach for studying complex sociotechnical systems, is used to study the relationships between the oil sands production and transportation systems, the institutional actors that govern them, and the critical contemporary issues of economic development, energy security, climate change, and safety. Specifically, strategic alternatives – pipelines and railroads – for adding transportation capacity from the oil sands are identified and their performance along dimensions of societal concern are compared and contrasted. Additionally, recognizing that railroad safety is of particular concern, CAST, an accident investigation tool built on the STAMP accident causation model, is used to study the safety control structure of the Canadian railway industry that existed prior to the Lac-Mégantic accident Findings For each question, the research approach and relevant literature considered are briefly summarized, along with any particular methodologies used to respond to the question. The contribution of the theses response to each question is then posited. (1) What is driving the demand for greater transportation capacity of crude oil in North America, what are the strategic alternatives for providing that transportation capacity, which institutional actors have influence over the implementation of these strategic alternatives, and what influence do these actors have? Chapter 2 uses information from government (notably the Alberta Government, National Energy Board of Canada [NEB], the US Energy Information Administration [EIA], and US Department of State), industry sources (notably the Canadian Association of Petroleum Producers [CAPP]), other researchers and consultants (notably the Canadian Energy Research Institute [CERI], as well as, Cairns, Dunbar, Forrest, Gordon, Choquette-Levy, Chen et al.), and media reports to describe the existing oil sands production system, its transportation system, and the trends motivating the desire for greater transportation capacity. It then identifies information regarding the strategic alternatives using information from the US Department of State as well as pipeline and railroad industry sources. Using information from government agency websites, relevant statutes, the Congressional Research Service (CRS), and trade reports, the particular contribution of this chapter is that it identifies and describes the role of governmental actors in overseeing the implementation of both rail and pipeline strategic alternatives in both Canada and the US. By the end of Chapter 2, it is clear why there is such debate over the potential response by railroads to pipeline permitting decisions, because, unlike with pipelines, few regulatory mechanisms exist to limit railroads’ ability to transport crude oil. 5 Chapter 2 provides the necessary background with which to compare the performance of pipelines and railroads by responding to Question 2. (2) In the context of the strategies of the Canadian and US governments related to broader issues of public policy, how does the performance of rail transport compare to pipelines? a. Furthermore, how does uncertainty affect the strategies of the actors? Chapter 3 evaluates the tradeoffs of railroads versus pipelines using the Keystone XL (i.e. Alberta to the US Gulf Coast) as its case study. Specifically, the chapter considers not only the direct impacts of the transportation system itself along economic, environmental, and safety dimensions, but also how it interacts with the oil sands production system to impact economic development, energy security, and climate change. It relies heavily on the information researched in the US Department of State Final Environmental Impact Statement (2014), but also critiques the findings in this document using information from academic, government, industry, environmental and other researchers (such as CERI, CRS, the Manhattan Institute, The Pembina Institute, Council on Foreign Relations, Cairns, Knittel, Tarnoczi, Shelton-Davis, etc.). The chapter also incorporates other information from media and trade publication reports as appropriate. The chapter also considers the impact of regulatory uncertainty – the uncertainty created by governments as they contemplate whether to approve pipeline permits or not – on railroad industry investment in bitumen transportation capacity. It provides the results of a dynamic program – a modeling technique used to consider situations in which a decision-maker can take action at multiple periods in the future – to suggest how railroads would invest in transportation capacity (infrastructure and rolling stock) before and after they know the results of the pipeline permitting decisions. The contribution of this chapter is that it provides an evenhanded discussion of the performance of railroads and pipelines, as well as the tradeoffs associated with expanding oil sands production. It makes this contribution by compiling literature from several trade and academic sources, and by discussing the merits of each. Additionally, using the results from a dynamic program, the chapter also makes a contribution by explaining the regulatory uncertainty facing the railroad industry mentioned in other sources (Auffhammer 2014, Forrest and Brady 2013). 6 While the dynamic programming model cannot explain railroad action precisely given the lack of exact cost and capacity data, it provides insight into the railroad response (or lack thereof) to the growing production of bitumen from the oil sands. One of the issues raised in Chapter 3 is whether rail and pipeline safety data can be compared due to differences in data collection. This issue provides further motivation to consider railroad safety in Question 3. (3) If railroads are to take a greater role in the transportation of crude oil, what considerations of safety at the railroad management and regulatory should be addressed? Chapter 4 addresses railway safety of crude oil transport assuming the railroads were going to continue to transport crude oil. Using the Lac-Mégantic accident and the Canadian railway regulatory environment as context, the chapter uses the accident investigation tool CAST (Causal Analysis based on STAMP) to describe the hierarchical safety control system for transporting crude oil by rail. CAST is premised on an accident causation model known as STAMP (Systems- Theoretic Accident Model and Processes), which views accident causation as resulting from inadequate control provided by or coordination issues within a safety control structure. A safety control structure is a mechanism in which hierarchically arranged controllers apply constraints to lower-level controllers and a process to ensure safe behavior of the overall system emerges (Leveson 2011a). The use of CAST was motivated by the ambiguity in using historical safety data to compare the safety of pipelines and railroads for transporting petroleum products: differences in data collection between the modes and the fact that railroads in North America had not transported large volumes of crude oil until 2008 using unit trains means that even if conclusions could be drawn, they would still be subject to debate