New owner of railroad through Quebec town plans to ship crude oil again

McClatchy Washington BureauMay 16, 2014 

The Wall Street firm that owns the railroad through Lac-Megantic, Quebec, is making plans to ship crude oil again through the lakside town devastated last summer by a fiery train derailment.

John Giles, the CEO of the newly created Central Maine & Quebec Railway, told the Associated Press on Friday that the company plans to spend $10 million upgrading the tracks during the next two years and hopes to resume crude oil shipments within 18 months.

“We have chosen not to handle crude oil and dangerous goods through the city until we’ve got the railroad infrastructure improved, and made more reliable,” Giles told the AP.

On July 6, 2013, 47 people were killed and much of the town’s center was destroyed when a 72-car train loaded with crude oil ran away unattended and derailed, igniting a massive inferno.

The rail carrier operating the train, the Montreal, Maine & Atlantic, filed for bankruptcy after the derailment. In December, Fortress Investment Group, a New York buyout firm, bought the railroad’s assets in an auction for about $15 million.

The crude oil in the derailed train originated in North Dakota’s booming Bakken shale region and was heading to a refinery in New Brunswick. Since the derailment, the refinery has been receiving Bakken crude by barge from a terminal in Albany, N.Y., where the oil is offloaded from trains.

North Dakota is producing more than 1 million barrels of oil a day, second only to Texas. More than 70 percent of that volume moves to market by rail, and much of it goes to refineries on the east and west coasts not served by pipelines.

The Lac-Megantic derailment was the first in a series of accidents in the past year involving Bakken crude. Though more recent derailments have not been fatal, they have resulted in large spills and fires.

A train derailed near Aliceville, Ala., in November, spilling about 750,000 gallons. Then another train derailed near Casselton, N.D., in December, spilling 475,000 gallons. Another train derailed last month in downtown Lynchburg, Va., spilling more than 20,000 gallons into the James River.

Regulators have warned that Bakken crude is more flammable than conventional oils. The derailments have put pressure on the rail industry and its regulators to improve the safety of crude oil shipments.

The U.S. Department of Transportation last month sent a package of proposed regulations to the White House for review. Its Canadian counterpart last month gave railroads three years to phase out tank cars not considered robust enough for crude oil transportation.

Fortress isn’t the only investment firm with a stake in America’s new energy economy.

Carlyle Group partnered in 2012 with Sunoco to save the largest refinery on the East Coast. The South Philadelphia facility used to receive imported crude from tanker ships but now gets Bakken crude by the trainload every day.

Warren Buffett’s Berkshire Hathaway owns both BNSF Railway, the largest hauler of Bakken crude oil, and Union Tank Car, one of the country’s largest manufacturers of railcars that carry it.

Email: ctate@mcclatchydc.com; Twitter: @tatecurtis

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