Oil imports by rail from Canada have hit a historic high, meaning more oil trains are rolling across Minnesota and raising the alert level of local emergency managers.
Rail shipments from Canada to the United States more than doubled during 2018 as Canadian oil production outstripped the capability of pipelines to ship the stuff, including the six Enbridge-owned lines crossing northern Minnesota.
“It is a case of supply overtaking pipeline capacity, so oil moves to the next available form of transportation — trains,” said Kevin Birn, an oil industry analyst with IHS Markit in Calgary.
Oil train traffic through Minnesota from North Dakota was also up noticeably in 2018, though nowhere near peak levels of 2014. The North Dakota rail uptick is largely rooted in oil price shifts.
Minnesota isn’t much of a destination for oil by rail, but it’s a significant transshipment point.
Canada’s two big railroads, the Canadian National (CN) and the Canadian Pacific (CP), have major routes in the state, the former running through the Twin Ports, the latter through the Twin Cities. The BNSF Railway also moves some Canadian crude in Minnesota.
BNSF said it’s seen a “moderate” increase in Canadian oil shipments. Canadian Pacific declined to release any oil train details. Canadian National said its total oil shipments jumped 77 percent from 2018’s third quarter to the fourth quarter, though it didn’t disclose more specific data.
Over the last four months of 2018, 299 oil trains on the Canadian National’s tracks crossed from Ontario at Ranier, Minn., up from 121 during the same time a year ago, said Willi Kostiuk, emergency management coordinator for Koochiching County.
Said Ranier Mayor Dennis Wagner: “I see tons of oil cars go through and they are always a concern.” Oil trains typically have 100 tank cars, each carrying around 30,000 gallons.
Scot Olson became Kittson County’s emergency management director last year, and local fire departments told him they were seeing an increase in oil trains crossing the border from Manitoba. “That’s a big concern when I talk to county safety people,” Olson said. The CP and BNSF both run oil trains through Kittson County in the state’s northwest corner.
Oil production grows
High-profile accidents thrust oil trains into the spotlight a few years ago, the biggest being a fiery 2013 disaster in Lac-Mégantic, Quebec, that killed 47 people. A year later, a BNSF oil train crashed and burned near Casselton, N.D., about 20 miles west of Fargo. Over 1,400 people were evacuated, but there were no injuries.
Both of those trains were carrying North Dakota’s Bakken crude during the height of that state’s oil boom. Last June, a BNSF train carrying Canadian oil derailed during a flood in northwest Iowa and spilled 160,000 gallons of crude. The oil did not ignite.
The BNSF said in a statement that it has reduced mainline derailments by nearly 50 percent over the past decade and continues to use technology to improve safety.
The Fort Worth, Texas-based railroad is a prime hauler of Bakken crude. In one week during December, BNSF moved five to 11 Bakken oil trains through Hennepin, Ramsey, Anoka, Dakota, Washington and Stearns counties, according to filings with the Minnesota Department of Public Safety. That compares to only two to seven oil trains during the first week of January 2018.
Still, the recent tally is significantly below the 29 to 39 Bakken oil trains BNSF ran through those Minnesota counties during one week in September 2014, a time of peak North Dakota production coupled with inadequate pipeline capacity. The Dakota Access pipeline’s opening in 2017 dramatically cut oil shipments by rail from North Dakota.
Oil producers prefer to ship oil by pipeline. It’s by far the most cost-effective — and therefore most common — form of crude transportation. Calgary-based Enbridge now moves 2.8 million barrels per day on its six-pipeline corridor from Alberta to Superior, Wis., the largest conduit of Canadian oil into the U.S.
By contrast, total Canadian oil exports by rail in November were 330,402 barrels per day, according to Canada’s National Energy Board. Still, that’s the highest on record since data collection began in the early 2010s. Birn expects that number to hit 400,000 barrels per day when December data is released.
Oil production rose worldwide in 2018 as oil prices generally climbed, though much of the increase in Alberta stemmed from new oil projects coming online and continued productivity improvements, Birn said. Oil was “piling up” in Alberta, he said.
The problem: pipeline limbo. Two of three major Canadian pipeline projects drifted further into uncertainty last year. The third, Enbridge’s new Line 3, is under construction in Canada and was approved by Minnesota utility regulators in June. But the controversial pipeline still needs additional government permits.
The oversupply of Alberta crude led to a collapse in Canadian oil prices last year, giving producers an incentive to pony up the premium for rail shipment.
The increasing volume of oil-by-rail means more vigilance for emergency managers like Kostiuk in Koochiching County. One of his prime concerns is a derailment on or near the 111-year-old railroad bridge crossing the Rainy River at Ranier.
Water intakes for International Falls and Fort Frances, Ontario, are about 800 yards west of the bridge, Kostiuk said.
“My concern is that when you look at Alberta oil, it clogs up and moves to the bottom.” A heavier crude, it doesn’t sit on top of the water for as long as lighter oils like those from North Dakota, he said.
Canadian National “has been very good to work with,” but it would take the railroad four to six hours to get a full complement of equipment to contain a spill at Ranier, Kostiuk said.
Canadian National said in a statement that it has “developed and maintains a spill response plan that meets the requirements and timeline” of Minnesota law.
Canadian heavy oil is “not as explosive, from my understanding, as Bakken oil,” Kostiuk said. “But that’s not to say it’s not dangerous.”
Indeed, a Canadian National train carrying oil from Alberta derailed in 2015 near the small town of Gogama in northeastern Ontario, sparking a fire that burned for three days. That incident followed another fiery CN train derailment in the same region just a few weeks before.
It’s not clear how long the Canadian oil train influx will last. After the government of Alberta curtailed the province’s oil production in December, the price of Canadian crude jumped significantly.
That has made shipping Canadian oil by rail less economical this year. Earlier this month, Exxon Mobil’s Canadian arm, Imperial Oil, said it would virtually stop oil shipments by rail due to rising costs. Imperial is one of Canada’s top oil shippers.
Analysts expect to see a decline in Canadian oil exports in data for January. But the Alberta-mandated oil production cuts are expected to phase down in the coming months, and rail traffic could pick up again.
“We expect a good year for [oil] movements in 2019,” Canadian National said.