The decision by the Canadian federal government to lower the speed limit of freight trains carrying dangerous goods may have a significant impact on the oil industry. The order could potentially reduce the current crude-by-rail capacity by up to 10 per cent. This is the first careful conclusion, a week after the extraordinary measure was announced.

The reduction of speed limit came in response to the derailment of a crude oil train near Guernsey, Saskatchewan, Thursday 6 February. On Friday 7 February a temporary speed limit of 25 mph was announced for all trains carrying more than 20 cars of dangerous goods. The limit is in force for 30 days, but could be changed depending on the outcome of an investigation into the accident. So far, this has not happened.

Lost capacity

“The situation is still early but on a preliminary basis we estimate this mandate could effectively reduce current Canadian crude-by-rail capacity by 10 per cent if we assume railcars travel at top speeds (above the new speed limit) one-third of the time”, financial investment firm Morgan Stanley said.

Oil is transported by rail in large quantities, which have been increased even further since the government has been allowing oil producers to exceed their crude production limits and ship crude via rail amid delays in adding pipelines. National railway company CP handled more than 36,000 carloads of crude in the fourth quarter of last year, and executives said last month that they could match that level in 2020 (Yahoo! FInance).

Apart from oil, the transport of other commodities may also be affected, experts have said. Some trains carrying dangerous goods also carry other goods, such as grain. What is more, the slowdown of certain trains on the tracks will consequently slow down other traffic too. A potential remedy for this is for those with excess capacity to add more railcars, Morgan Stanley suggested.

Major fire

After the derailment on 6 February, a major fire broke out near the town of Guernsey and dozens of residents had to evacuate their homes. It was not until Friday evening that the fire was extinguished.

Although no injuries were reported, it was the second derailment in the same Canadian province in a short time. In December, nineteen wagons filled with oil got off the rails, 10 kilometers further away. It led to a huge fire and a leakage of around 1.5 million liters of crude oil. In the last accident, about 1.2 million litres of oil was spilled.

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Canada reduces speed limit for dangerous goods