BDO’s Charles Dewhurst talks rail petroleum transportation and social license

In the second part of a 2-part Q&A, BDO’s Charles Dewhurst touches on the rail accident in Lac Megantic and the necessity of public support. Oil & gas transportation generates a lot of interest, both from industry insiders and the public at large. The controversial Keystone XL pipeline and the tragic rail accident in Lac Megantic, Quebec have kept rail and pipeline transportation under the microscope of public opinion. This has made it harder than ever for transportation infrastructure to gain public support. In the second part of a 2-part Q&A, BDO USA’s Charles Dewhurst talks with PennEnergy about pipeline and rail transportation, environmental impact, and social license to build and operate.

To read part 1 of PennEnergy’s conversation with Charles Dewhurst, click here.

PennEnergy: How does the risk of pipeline ruptures and leaks compare to the risks inherent in rail transport? Is one definitely more secure than the other?

BDO’s Charles Dewhurst talks rail petroleum transportation and social license Charles Dewhurst: In 2012, the U.S. Energy Information Administration (EIA) found that pipelines were by far the most popular form of transportation for crude oil, totaling two billion barrels that year, which compares with 30 million barrels carried by rail and 131 million barrels by truck in the same year. In terms of transportation costs, the Manhattan Institute found that pipelines are much less expensive at $5/barrel/1000 miles versus $15/barrel/1000 miles for rail. In its study of the advisability of building the Keystone XL pipeline, the U.S. State Department estimated the cost of transporting crude from the Canadian oilsands to the Texas Gulf Coast refineries to be $10/barrel for the proposed 1700 mile pipeline versus $15 to $20/barrel for rail.

When we turn to look at safety, the picture becomes more complex – are we most concerned about the loss of human life, or should we also focus on damage to property and pollution to farmland and groundwater? In a June 2013 study, the Manhattan Institute considered many different safety criteria for pipelines versus rail transportation, but arguably the best overall measure was incidents (or accidents) per billion ton-miles. They found that between 2005 and 2009, pipelines suffered 0.58 incidents per billion ton-miles versus 2.08 for rail and 19.95 for truck transportation.

In my opinion, it is clear that pipelines are the most widely-used, cost-effective and safe means of transporting crude oil across North America. Also, as I noted to an earlier question, pipelines fare slightly better than rail when we consider CO2 emissions in the aggregate.

PennEnergy: Rail accidents are on the rise. Is that simply a factor of increased use of rail transport, or are other factors present?

Charles Dewhurst: Following the recent horrific tragedy in Lac Megantic, Quebec, in which the derailment of a train carrying crude oil caused a massive explosion and killed 47 people, there is clearly a need for more in-depth study of rail as a means of transporting combustible materials such as crude oil--particularly when pipelines have a far superior safety record. That said, rail and truck transportation of crude has been on the rise. This is primarily because two of the largest oil-producing shale formations (the Bakken and the Eagle Ford) have overrun our existing pipeline infrastructure as production from these areas has rapidly come online. Hopefully, rail and truck transportation from these areas will gradually be replaced by pipeline transportation as new planned pipelines are built. This is not to say that rail and truck transportation do not have their place in the oil transportation marketplace – they do! But in my opinion, rail and trucks should primarily be used as a short-term solution when pipelines are not available in an area, or when they are overloaded as in the Bakken and Eagle Ford. With the continuing delays in the approval of the Keystone XL pipeline, we have also seen that rail and trucks have stepped up to ensure that delivery of crude from the Canadian oilsands to the Texas refineries is not disrupted too adversely.

PennEnergy: How important is the social license to operate in an environmental area? Could a pipeline or rail project be implemented in an environmentally sensitive area without local public backing?

Charles Dewhurst: I think it would be foolish for a pipeline or rail project to go ahead without local community support. The oil and gas industry has repeatedly demonstrated its commitment to obtaining the support of all stakeholders in decisions on fracking in populated areas, and has gradually created an atmosphere of trust about the fracking process in many communities by doing so. Oil and gas companies should pursue exactly the same strategy with regard to environmental concerns surrounding transportation.

To read part 1 of PennEnergy’s conversation with Charles Dewhurst, click here.

Charles Dewhurst is leader of the Natural Resources practice at BDO USA, LLP and the global leader for the International Natural Resources Group for BDO International.

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