Irving Oil's oil-by-rail terminal in Saint John, New Brunswick, has seen increasing air quality problems since it started up in 2012, undermining the company's assurances to regulators the project would likely not impact the environment, according to documents obtained by Reuters.

The case at Canada's largest oil-by-rail terminal could have implications for the scores of other facilities planned across North America to handle a surge in domestic crude output, particularly those planned near urban areas.

New Brunswick's Department of the Environment approved the 145,000-barrel-per-day Saint John rail terminal project in June 2012 without requiring an environmental impact study after Irving said it did not expect it to trigger new odors or emissions and was just a variation on its existing marine terminal facility on the same site, according to the documents obtained through a Right to Information Act request.

~But complaints from Saint John residents about smells from the terminal have surged alongside an uptick in emissions of volatile organic compounds, or VOCs - chemicals that can pose a human health risk - with residents describing the odors as powerful enough to "burn your eyes," according to the documents.

Irving has since scrambled to deal with the issue, testing odors emanating from crudes of different origins, minimizing venting from rail tankers, and hiring a company specialized in odor reduction to assess the problem, according to company emails obtained by Reuters.

The facility is among roughly 180 oil-by-rail terminals operating in North America, with 50 more planned or under construction. The rapid increase in rail transport of crude has triggered worries about public safety, particularly after the deadly derailment of an oil-laden train in Lac-Megantic, Quebec, last year that was bound for Irving's terminal.

Worries about air quality from oil-by-rail terminals - which unlike pipeline or marine terminals sometimes expose crude to open air during unloading - have also been rising. Testing by New York environmental officials this month in Albany, another oil-by-rail hub, found emissions of harmful compounds too low to be considered a public health concern, but the proximity of many rail terminals to populated areas continues to raise the ire of activists there and elsewhere.

~Irving's rail project is located at Irving's East Saint John terminal, at the edge of the eastern Canadian province's largest city. The terminal has for decades been used to move petroleum supplies by ship to serve the company's 300,000 bpd refinery, and was refurbished to add four rail spurs.

During the first five months of 2014, Irving logged 21 complaints from residents about smells from the terminal, up from four in 2013 and one in 2012, according to Irving filings to the Department of the Environment. Most complaints were traced to rail offloading operations, according to the documents.

Residents described the odors as "horrendous" and "very pungent rotten eggs," according to complaint files maintained by the Department of Environment. One resident said she was concerned about the impact of the fumes on her newborn child, while another said those in his household had headaches.

Emissions of volatile organic compounds increased from the terminal to 181 metric tons in 2013 from 156 metric tons in 2012, according to the documents. They remained sharply lower than in 2011 before the installation of a vapor recovery unit, however, according to the documents. No data was available for 2014.

~A spokeswoman said the company was working to reduce odors from its operations but did not give details. "We have a longstanding tradition of working with our neighbors, and we take their concerns very seriously," the spokeswoman, Samantha Robinson, said.

Irving said this month that Paul Browning, the chief executive officer it appointed last year, had left the company, but did not provide a reason why. Irving Oil is owned by the billionaire Irving family, which operates more than 100 businesses from forestry to shipbuilding in Canada.

UNEXPECTED PROBLEM

The Department of Environment has told residents that Irving believes the odors "may be associated with a certain type of crude which requires steaming" to unload railcars, according to copies of department emails obtained by Reuters. Steaming the superheats the crude inside railcars and helps it flow.

"In the short term, they will be using odor abatement and optimized steaming procedures. In the long term, they will be doing an odor study just around ESJ (East Saint John)," Department of Environment Inspector Cathy Dubee wrote to a resident in February.

~A source familiar with Irving's operations said the air quality issues worsened after it reduced imports of lighter, more volatile crudes like that which exploded in Lac-Megantic, in favor of heavier grades like Albertan Peace River Sour, which is cheaper but thicker and has a stronger smell.

He said the company now uses a "closed hatch" system for unloading trains, to ease odor problems. That process still requires steaming but reduces the crude's exposure to open air.

Two residents living near the terminal told Reuters the odor problems have subsided since May, "although some days can be smelly," one added.

The air quality problems may have come as a surprise to the company and regulators. In Irving's May 2012 application for approval for the rail project, the company wrote to regulators that additional "odor and VOC emissions are not expected based on current experience."

~An Irving executive wrote in an email to an environment official a month earlier that he did "not see any obvious requirement for an EIA (Environmental Impact Assessment)." The official responded two hours later agreeing, according to a copy of the email obtained by Reuters.

Gordon Dalzell, head of the Saint John Citizen's Coalition for Clean Air, said his group was dismayed by the process.

“To plunk a new terminal like this, right in the middle of city without full public review was not only disappointing but neglectful,” he said. “We’re very disappointed. And now we’re paying the price with these odors.”

An official at the Department of Environment did not respond to requests for comment.