The ruins of Lac Megantic, Quebec smoulder in the aftermath of an oil-by-rail explosion that left 47 dead.
Recent oil-by-rail accidents are beginning to wake the nation up to the hazards of this type of freight. A lot of the rail lines used for this purpose run through cities and towns, and mayors (including Chicago’s own Mayor Emanuel) are calling for fees on hazardous rail shipments.
Both the oil and rail industries should be paying close attention to these developments and responding with serious safety improvements, otherwise public opinion could move decisively against them. The Bakken is no longer a place out west. Rather, it’s literally going right by people’s back doors.
The industry will likely argue, and I would agree, that no technology for oil extraction or oil transportation is risk-free. Yes, if the Keystone Pipeline had been finished in 2013, it might have leaked too. However, it probably would not have been routed through the middle of a town.
But that doesn’t end the inquiry. The Montreal, Maine and Atlantic Rwy., which is responsible for the deaths of 47 innocent people in Lac Megantic and the destruction of most of that town’s center, filed bankruptcy in August 2013. Here’s a quote from Bloomberg:
“Montreal, Maine & Atlantic traces its roots to 1864. …. The company listed assets of as much as $100 million and debt of as much as $10 million in its U.S. bankruptcy filing.
“Environmental cleanup costs will probably exceed C$200 million ($194 million), according to the company’s Canadian court filing. Montreal, Maine & Atlantic’s liability insurer, XL Insurance Co., has failed to make any payments under the insurance policy, and neither Montreal, Maine & Atlantic nor its Canadian unit is able to pay at this stage “given their financial situation,” according to the document.
“Montreal, Maine & Atlantic holds a $25 million liability insurance policy with XL, which covers costs for evacuation, fire suppression, pollution cleanup, bodily injury and property damages, according to the filing.
“The U.S. government is among the Montreal, Maine & Atlantic’s creditors, with the railroad owing $27.5 million under a Federal Rail Administration credit facility, according to court papers.”
http://www.bloomberg.com/news/2013-08-07/montreal-maine-railway-files-for-bankruptcy-after-crash.html
That estimated $194MM for clean up does not include any damages to those who were injured or to the estates of those killed.
At the outset, and on its face, this situation represents a huge implicit subsidy provided to the oil and rail industries because the government (whether Canadian or American, federal or state) must fill the damages gap by cleaning up the mess, rebuilding an entire town, providing some form of assistance to the survivors, etc. Indeed, some portion of that subsidy will have been provided with tax dollars paid by the victims, a grotesque reality to which the press has given insufficient attention. Memo to Tea Party: This is one of the ways that the oil and rail industries are getting “stuff” from the government.
The problem of shipment of oil by rail is a failure to properly align financial incentives. The oil and rail industries have done a Ford Pinto risk/benefit analysis. Let’s see… At 42 gallons per barrel of oil and 34,500 gallons per DOT 111 tanker car, each car holds about 821 bbl of crude. With oil at today’s price of about $97/bbl on the NYMEX, a 100-car tanker train from the Bakken is carrying almost $8MM worth of crude. Assume the Bakken ships out ten trains a day, which is not an unreasonable figure. In that case, if a gas tank (which is what a DOT 111 tanker car is, more or less) explodes on people in Lac Megantic, and the business forfeits $100MM in assets in BK, that’s just a little more than a day’s worth of oil production. Drill, baby, drill.
First, there should be a minimum insurance coverage for these carriers far above the piddling $25MM carried by the MM&A line. One need be neither an attorney nor an environmental expert to look at these accidents and realize that that coverage level is inadequate to the risk.
Second, the MM&A railroad most likely has a parent somewhere up the corporate food chain, and perhaps they have deeper pockets. Whether those entities can be cast in liability for these accidents is certainly a question worth looking into, especially since they put into the stream of commerce an inherently dangerous commodity through an entity that was woefully under-capitalized and under-insured for the business in which it was engaged.
Third, the law should provide a far more extensive net of liability, akin to the approach with other environmental issues. Consignors and consignees of these loads should be potentially responsible parties, or PRPs.These are the big dogs who ship or receive these hazardous materials. If they could be held liable, you’d see safety improvements PDQ.
Fourth, that extended liability net should reach the directors of these corporations if insurance is not sufficient, which would not be much different from the liability of Lloyd’s of London syndicate members. After all, they’re willing to take risks with the lives and bodily integrity (not to mention property) of persons in towns along the rail lines, and they should not be able to do that risk-free.
Until these or other measures are taken, the financial rewards will continue to go to the oil and rail industries, the government will subsidize accident reparations, and the risks (including death, burns and loss of property) will be allocated to the public — not unlike the Financial Crisis of 2008-09.
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Energy Law, Policy and Development 