Transport Committee on April 10th, 2014

[Greg Stringham]

I can start with that.

As we take a look at the full chain, from the production facilities all the way down to when it ends up in the market itself, we've looked at the safety incidents that happen along the way generally but not specifically. Wherever there is a transfer point, there is an additional need for assessment of what's going there, but also it's in the operation of facilities along the way. The transport points themselves do add another element of safety and risk that is being looked at along the full value chain, from when we produce it all the way until it actually gets to the end consumer.

[Ed Komarnicki, Conservative, Souris—Moose Mountain, SK]

Don't get me wrong. Of course we want to be able to transport the Bakken crude to market, for sure, but I understand it's going to be an exponential increase of transload facilities. What I find remarkable is that you would have a transload facility in a city without having made the assessment if it's safe there, if it's operating safely and whether they have the capability to deal with it. It would seem to me more logical that, before you expand transload facilities, before you actually start utilizing the facilities, all of this work would be done in advance. Why hasn't it been so, by your members?

[Greg Stringham]

When our members are looking at the transportation of this, they rely on the transportation companies to put it in the locations that are most appropriate.

Again, as Mr. Pryce said earlier, we believe that those need to be assessed and looked at if they are being done in places that are higher risk. Most of the facilities where our transload and our members' are being built are at the very front end, when it's transferred first from their production facilities into the transporter, whether that be a pipeline or whether that be rail or whether that be a truck. Those happen out in the rural areas where the production is mostly coming on. From there it travels through rail, through truck in some cases, but through pipeline, through a number of other locations. Each one of those points needs to be assessed by the transporter, according to the regulations that are in place, and with this additional eye on risk, to minimize the risk.

In my mind, as we look at this, we're going to have to look at both pipeline and rail as we move forward, because pipeline continues to be a big part of this development as well.

[Ed Komarnicki, Conservative, Souris—Moose Mountain, SK]

Fair enough, but I heard you say earlier that we should be testing the volatility of the crude that's being placed in this tank, and maybe we haven't got there, but we've already been transloading that.

How is it that your members who are transporting your product haven't done that homework in advance to be sure when you actually start using it that all of these points have already been covered, as opposed to down the road?

[Greg Stringham]

I want to be very clear that all of the points on the current safety regime are being covered.

What we're suggesting is there need to be enhancements to that to make sure we prevent any future incidents and can get to the maximum amount of safety that can be there. That's not to say there's nothing there now. Clearly, the testing is there now, the regulations on where the locations can be are there right now, and the safety of transportation, whether that be by rail or pipeline, are all in place right now through the operations and through the regulations that are there.

[Ed Komarnicki, Conservative, Souris—Moose Mountain, SK]

When you come to a smaller community and you're looking at an emergency response assistance plan, especially in these transload facilities, you're dealing with communities that may not have the capability or the capacity. Has your association or your membership looked at making sure there is a provision for that capacity to these smaller communities, if you're going to place the facilities there?

[David Pryce]

In western Canada we have an entity called Western Canadian Spill Services, an organization that is jointly funded by the producers. In fact there are mandatory requirements to participate in that, or have separate response capabilities, by the regulators in western Canada. That's an entity that is positioned to respond to any incident that might occur. They do routine exercises or testing with the companies and with the regulators in different scenarios in those communities.

[Ed Komarnicki, Conservative, Souris—Moose Mountain, SK]

Back to the question I had about the cost, which I estimated in the billions of dollars, whether it's $10 billion or $12 billion, I wondered how those costs get absorbed and how they get passed on. If I understood you correctly, you're basically saying it's a market thing and it is going to be built into whether it's economical for you to transport that way.

Might the cost of replacing these DOT-111 cars or increasing the capacity of the transload facilities mean that the cost would be such that means other than rail would be considered?

[Greg Stringham]

No, as I said originally, right now about 95% of the product that we move on the oil side is moving by pipeline. Rail is relatively new and as we look at new pipelines across Canada and into our key markets, that will continue to be the main form. Rail is going into different areas right now and so it's one that's growing, but clearly we need to do that and make sure that it's done in a safe manner.

From the cost perspective—I want to be very clear on this one—with the world oil price being set by the dynamics of the world, any costs that come out of that do come back out of the cost that the producer pays and the total amount of revenue that comes back from that perspective. So it's not like it's being put on to consumers or it's actually being absorbed by the rail companies or others. It's put into the tolls that we end up paying.

[Ed Komarnicki, Conservative, Souris—Moose Mountain, SK]

So—

[The Chair, Conservative, Larry Miller]

Actually, your time is up, Mr. Komarnicki, so I have to pass it over to Mr. Watson.

[Jeff Watson, Conservative, Essex, ON]

Thank you, Chair.

Just to clarify, for the public record, for those who may be watching, the question about what information municipalities have had or now have, in the event of an incident, municipalities have always had 24-7 access to CANUTEC which has copies of manifests. Every responding organization would have known this. In the event of an incident, they knew what they were dealing with. The gap that protective direction 32 addresses was the concern of the Association of Fire Chiefs and they wanted the historical data so they could pre-plan their training and ensure that they could pre-position, or have the means of combatting different source fires in the event of an accident.

That was recognized by the regulator, obviously, Transport Canada, and the AFC, as well as the Federation of Canadian Municipalities which hailed protective direction 32. For anybody who's read it—I have a copy in front of me—it not only provides the historical info to designated community emergency planning officials but there's an obligation that any significant change must be made or notified ASAP, and it provides a system of notification. There's a designated emergency planning official and a registry of those officials as the means of communicating that information now. That's a step forward. We agree with FCM in that regard and I think they're pleased with that.

I want to turn my attention for a moment to the testing and classification. Bakken obviously has different volatility, more volatility if you will, than say, diluted bitumen. Do witnesses here today feel that Bakken is inherently more dangerous than the latter when it comes to rail shipments? Is there value in classifying differently those elements?

[Bob Bleaney]

I can start with this question and I'm going to pass it on as well to Dave.

The quick answer is yes, Bakken crude demonstrates more volatile characteristics. It has higher light ends in its crude mix, but that's exactly why the testing procedures are being looked at very carefully, to ensure that it is being properly monitored.

I will pass this on to Dave to expand on that further if you like.

[Jeff Watson, Conservative, Essex, ON]

As briefly as possible, please.

[David Pryce]

Sure, thanks, Bob.

Yes, we do believe there is a difference in terms of the volatility and therefore they should be looked at and managed differently. That's why there are a variety of packing groups that Transport Canada rules have covered, and so looking at that and applying the higher standard packing group to those higher volatility crudes, to us, is an appropriate management measure.

[Jeff Watson, Conservative, Essex, ON]

Following the TSB's recommendation in light of Lac-Mégantic, the minister with a working group has been looking at emergency response assistance plans being developed for crude oils.

Do you support the initiative? Do you think that a single ERAP would sufficiently cover the range of products commonly referred to as crude oils, or that multiple plans should be developed based on the chemical characteristics of the shipment?

[Bob Bleaney]

We believe a broader plan can cover all crude quality issues in terms of response planning.

Dave.

[David Pryce]

I think it's important to make sure there's knowledge of the variety of products that exist out there and are being moved. We think a consolidated ERAP and/or emergency response system is probably more robust and more effective to manage the movement of crudes, and that's why we've been engaging with different associations

[Jeff Watson, Conservative, Essex, ON]

Tell me a little more about the proposal. I think, Mr. Bleaney, this was your proposal in your presentation today, this national system run by the carriers. I have some questions about what that means. Are we talking about coordination of shipping and railway company resources within regions to respond to a particular incident? Are we talking about a shift from the shipper through ERAPs and their resources and expertise to the railway company? What are we talking about by this national system, and who's doing what?

[Bob Bleaney]

It is the intent to have the carrier who is most familiar with the operations of his system to coordinate or lead the overall response plan, but the plan would draw on all the available resources to administer potential incidents. Dave, would you expand on that, please?

[David Pryce]

We are in dialogue with the Railway Association and Canadian Fuels Association and would entertain whoever else has to be part of that to set up a national system. The governance would still need to be defined, but I think everybody has a role and a responsibility in its design, funding, and operation.

The point about the carriers is that they're the ones who will first know if there's an incident, so we believe it is best suited for them to call down any response on that basis. We're talking about a coalition of the existing functions that's jointly participated in and managed, but we probably need to enhance that beyond what exists today.

[Jeff Watson, Conservative, Essex, ON]

What would your companies provide to that system?

[The Chair, Conservative, Larry Miller]

Sorry, Mr. Watson, but your time has expired.

We just have a few minutes left, and I'm going to allow Mr. Mai and Ms. Young one brief question each, leaving a minute for the response.

[Hoang Mai, NDP, Brossard—La Prairie, QC]

Great.

The Union of Quebec Municipalities has asked for steps to be taken to reduce the speed of trains in urban areas.

I know that rail companies have been asked that question. From your point of view, do you have any hesitation vis-à-vis that request, or do you support it? What do you recommend?

[The Chair, Conservative, Larry Miller]

Does anyone want to respond to that?