Canada to Hold Shippers, Railways Fully Accountable for Oil-Train Derailments

Canadians were reminded of the hazards of transporting volatile crude-by-rail when a 100-car, Canadian National Railway Co. oil train derailed and and exploded in a wooded section of Ontario less than two days before a 109-car CSX train derailed and exploded in West Virginia on February 16.  

To ensure that future damage caused by these derailments be fully funded, "Canada said it would create a compensation fund to cover the potential costs of oil-train derailments and finance the move with a new levy on crude shippers," writes Paul Vieira of The Wall Street Journal, and increase the minimum insurance required by major haulers of oil.

Crude shippers will have to pay 1.65 Canadian dollars ($1.32) per metric ton of crude oil carried, Canadian Transport Minister Lisa Raitt said...The minimum required insurance for companies carrying more than 1.5 million metric tons of crude annually is C$1 billion—affecting the country’s two biggest railroads, Canadian National Railway Co. and Canadian Pacific Railway Ltd."

"Montreal Maine and Atlantic Railway, which operated the train that derailed in Lac-Mégantic, had C$25 million in coverage, writes Vieira. "The Quebec government has said in court documents it expects to spend up to C$409 million for cleanup and rebuilding purposes..."

According to "Greg Stringham, a vice president at the Canadian Association of Petroleum Producers, the levy... amounts to about 25 cents a barrel," writes Vieira.

The shipper fee is not permanent—it is meant to build up a compensation fund of C$250 million. Heretofore, only the railways were liable for damage caused by oil spills and explosions. 

The Railway Association of Canada, a lobby group, said the industry supports the idea of having more stakeholders share in the costs associated with rail accidents involving dangerous goods, “but the regime can be improved by including other dangerous goods in the compensation fund right away.”

Vieira reminds us of the explosive growth in crude-by-rail shipments in Canada: "The amount of crude moving by rail in Canada has quadrupled since 2012, and is forecast to more than triple, to 700,000 barrels a day, between now and 2016. Rail has become an attractive option due to a lack of pipeline infrastructure." However, he closes his piece by writing that most "crude in Canada is shipped via pipeline."

Correspondent's note: Subscriber-only content to The Wall Street Journal article should be available to non-subscribers for up to seven days after Feb.21.

*Corrected February 24, 2014.