Companies & Industries

Lac-Mégantic isn't good for pipelines—it's bad for oil, period: Andrew Leach

Daniel Acker/Bloomberg via Getty Images

Daniel Acker/Bloomberg via Getty Images

The scale and scope of the terrible tragedy in Lac-Mégantic, Que., is only beginning to sink in, and my thoughts are certainly with the victims and their families.

In the midst of shock and sadness, already there are those who have concluded this is an advantage for the pipeline industry in the oil debate.  An op-ed by Diana Furchtgott-Roth in The Globe and Mail was quick to conclude that “after Saturday’s tragedy in Lac-Mégantic, Que., it is time to speed up the approval of new pipeline construction in North America…. If this oil shipment had been carried through pipelines, instead of rail, families in Lac-Mégantic would not be grieving for lost loved ones today, and oil would not be polluting Lac-Mégantic and the Chaudière River.” Queen’s Professor Warren Mabee was quoted in the Toronto Star saying that “this could be a way for the pipeline lobby to emphasize a point that while they’ve had some problems, there’s not been this level of death and this level of impact.”

I don’t agree. I think that this tragedy will have an industry-wide, negative impact. In reading these quotes and reactions, I see strong parallels to others in and around the oilsands industry after the BP spill. A couple of weeks after the Deepwater Horizon exploded and sank, then Environment Minister Jim Prentice stated that “the ecological disaster in the Gulf of Mexico shows that Canada’s oilsands are less risky than offshore drilling.” Dina Cover of TD Bank was sure we would see an economic boom from new oilsands investment given “the notion that oilsands are a safer method of oil production (than Gulf Coast offshore).” And Eric Lam at the Financial Post offered a similar thought: “on-shore operations such as Canada’s oilsands may ultimately come out as winners.”

In the wake of the BP disaster, Andy Revkin wrote that “the oil disaster doesn’t belong to BP, or to President Obama or his predecessor; we all own it.” In my view, that applies to Lac-Mégantic as well as to BP. We all own this disaster, but it will be owned in large share by all those who make their living producing and transporting oil.

The BP spill led to more regulation (although not as much new in the U.S. as some would like) and less investment in the U.S. offshore oil industry than would have otherwise been the case, and these changes were likely compensated for with increased investment elsewhere.  My sense, however, is that these effects have been trumped by the fallout from the spill on the oil and gas industry as a whole. First, the spill seems to have led to decreased trust in the oil and gas industry generally, and foreign companies specifically in the eyes of the U.S. public. This has likely hampered TransCanada’s efforts to build Keystone XL. The spill also highlighted awareness of the risks associated with oil and gas production—sure, oilsands might have appeared relatively better as a result, but in absolute terms, they were easily portrayed as yet another example of the high costs and high risks associated with oil extraction. Finally, the investigation into the spill highlighted many of the shortcomings with respect to regulatory oversight of the industry.

The fallout from the Lac-Mégantic tragedy will depend on what we learn about the ultimate causes and, as Paul Wells wrote here, that’s a long way off. I expect, however, that there will be three first-order effects that will be very similar to those that followed the BP spill: 1) increased public consciousness of the dangers inherent in transporting oil and oil products and more aversion to having these products moved nearby; 2) increased calls for alternatives to oil rather than alternative means of transporting oil; and 3) decreased trust in regulators’ and firms’ abilities to sufficiently mitigate risks from transporting oil. If you’re in the oil transportation business, these are negative impacts, whether you move oil by rail or by pipeline.

I doubt there are many people in the oilsands industry today who feel that they are better off as a result of the BP spill, and I expect that the pipeline industry will come to feel the same way about Lac-Mégantic in short order.

Andrew Leach is an energy and environmental economist at the Alberta School of Business at the University of Alberta. Follow him on Twitter @andrew_leach.