Victim compensation after oil train derailment: Big Oil cost of doing business?

Repost from DESMOG

Cost of Doing Business? Oil Companies Agree To Pay For Some of Lac-Megantic Damages, But Not to Solve the Real Problems

By Justin Mikulka, June 21, 2015 – 05:58
Image credit: Wikimedia

Although insisting the industry is not to blame, several of the oil companies involved in the fatal Lac-Megantic oil train accident in 2013 have agreed to contribute to a fund to compensate the families of the 47 victims in that accident.

The Wall Street Journal reported recently that oil companies Shell, ConocoPhillips, Marathon and Irving have all agreed to contribute to the fund to avoid future litigation, along with General Electric and the Canadian government. While the actual amounts contributed by most companies involved are not available, the total fund is reportedly at $345 million. That sounds like a lot of money but still is less than the $400 million retirement package for Exxon’s last CEO, for example.

Canadian Pacific Railway Ltd. hasn’t agreed to the settlement, according to the Bangor Daily News, which reports that the judge in the case has delayed his decision on the settlement. Canadian Pacific has asked the court to shield it from future litigation and challenged the Quebec provincial court’s jurisdiction.

It is no surprise that oil companies would prefer to pay fines of tens of millions of dollars to avoid future litigation as well as duck responsibility for the full cost of the cleanup. Rebuilding the destroyed Lac Megantic property is expected to take as long as eight years and as much as $2.7 billion.

This approach has proven successful for the oil and rail industry in the past. In 2009, when a Canadian National (CN) ethanol train derailed in Cherry Valley, Illinois resulting in a fire and the death of one woman and injury to several others, the railroad paid the surviving family members $36 million.

The National Transportation Safety Board laid some of the blame for that tragedy on the “inadequate design of the tank cars, which made them subject to damage and catastrophic loss of hazardous materials during the derailment.”

But CN just paid the $36 million and the industry kept using the same inadequate DOT-111 tank cars to move ethanol and crude oil. It was the DOT-111 tank cars that were involved in the Lac-Megantic accident four years later, and the same tank cars that the oil industry is currently fighting to keep on the rails as long as possible.

There is no question it is far more profitable for the oil and rail industries to continue to use unsafe rail tank cars and to just pay off the families of the victims or for environmental damages from oil spills after any accidents than to invest in safer tank cars.

Canadian National has had two oil train derailments already in 2015 which the company reports have cost it $40 million. However, CN still reported over $700 million in net income for just the first quarter of 2015.

Business as usual in the oil-by-rail industry is highly profitable. Which is why the oil and rail industries are fighting against any safety measures that would require investment and cut into profits.

After the faulty tank cars, the two other issues the oil industry has fought against are modernized braking systems and removing the volatile and explosive natural gas liquids from the oil itself via stabilization.

Both of these proven safety measures would cost the industry billions of dollars to implement. So they haven’t done anything. It is far more profitable to live with the consequences of some accidents and make relatively small payouts to avoid lawsuits than it is to invest in safe alternatives.

In 2013, the year of the Lac-Megantic disaster, the big five oil companies made $93 billion in profits. Fines and settlements like those resulting from oil train disasters or deadly refinery accidents are simply a cost of doing business. And for these companies, it turns out to be a very small cost when compared to the profits.

In a forum on rail safety held in Albany, NY this month, emergency first responders from three oil train accidents (Lac-Megantic, Lynchburg, Virginia and Galena, Illinois) recounted their experiences dealing with oil train fires and explosions. While offering excellent insights to the risks involved with oil-by-rail, there also was insight into how the rail companies responded once the accidents occurred.

For both the Lynchburg and Galena accidents, it was noted that the rail companies were on the scene almost immediately. And they rebuilt the tracks and got them back in operation as soon as possible because in Galena, rail downtime was costing the company $1 million an hour. When money is at stake, the rail companies jump into action.

Did the rail company jump into action the day before the Lynchburg rail accident when an inspection revealed a defect in the track in Lynchburg? No.

At the forum in Albany, Lynchburg Battalion Chief Robert Lipscomb summed up the situation nicely.

“You got to remember their business is making money. Our business is taking care of emergencies. So sometimes those two don’t line up exactly right,” Lipscomb said.

When your business is making money, it is much easier to accomplish your goals by lobbying regulators to ensure weak regulations and paying out meaningless fines when something goes wrong than to invest in safety.

The oil trains will return to Lac-Megantic in 2016, with the same inadequate tank cars and 19th century braking systems. And they will be full of unstabilized, dangerous and very profitable oil.