About 100 people from the village of Gainford were evacuated.
"It was a huge boom and the house started shaking," said Devon Cadwell, 15, who lives on a ranch just outside Gainford.
One resident told CHED radio he heard a series of crashes moments before seeing a "huge, huge fireball" shoot into the sky.
"The fireball was so big, it shot across both lanes of the Yellowhead (Highway) and now both lanes of the Yellowhead are closed and there's fire on both sides," said the witness, identified only as Duane.
No damage to homes or other private property was reported.
The train was travelling from Edmonton to Vancouver, British Columbia, Paquin said.
The Transportation Safety Board said it is sending investigators to the scene.
Questions about the increasing transport of oil by rail in the U.S. and Canada were raised in July after an unattended train with 72 tankers of oil rolled into the small Quebec town of Lac-Megantic near the Maine border, destroying the town's center. The rail company's chairman blamed the train's operator for failing to set enough hand brakes.
Greenpeace Canada warned that train accidents such as Saturday's derailment in Alberta will become the "new normal" unless the government tightens safety rules for shipping dangerous goods by rail.
Keith Stewart, the environmental organization's climate and energy campaign coordinator, said the federal government has taken some steps since July's devastating derailment in Lac-Megantic, but not enough to mitigate the risks.
He wants Ottawa to launch a comprehensive review of the safety regulations for transporting oil, whether by train or other means.
"Three years ago, there was almost no oil being moved by rail. It's been growing incredibly rapidly and it's projected to keep growing that way and the safety standards in Canada simply have not kept up to the new ways to move new kinds of oil," he said.
Mark Hallman, a spokesman for CN Rail, said the four cars in the 13 car train that were carrying crude were undamaged and he dismissed Greenpeace's concerns.
"They are centered on the issue of crude by rail and the situation here is that the crude oil tank cars are intact and there are no indications of any leaks."
The rail cars that caught fire were carrying liquified petroleum gas, Hallman added.
Federal Transport Minister Lisa Raitt's office issued a statement on Saturday saying the government has spent more than C$100 million on rail safety and has increased fines for companies that violate safety regulations. The statement added that Transport Canada is monitoring the situation in Alberta.
The expansion of oil-by-rail traffic has come at a time when major pipeline projects face major hurdles such as complex approval processes and fierce opposition from environmentalists concerned about leaks.
Much of the increase in rail traffic is from oil produced in the Bakken region, a rock formation underlying portions of Montana and North Dakota in the U.S., and Saskatchewan and Manitoba in Canada.
The train that crashed in the small Quebec town was carrying oil from North Dakota to a refinery in New Brunswick, Canada.
The train, using DOT-111 railcars, was operated by a U.S. company, the Montreal, Maine & Atlantic Railway.
In the first half of this year, U.S. railroads moved 178,000 carloads of crude oil. That's double the number during the same period last year and 33 times more than during the same period in 2009. The Railway Association of Canada estimates that as many as 140,000 carloads of crude oil will be shipped on Canada's tracks this year, up from 500 carloads in 2009.
Following the fatal Quebec derailment, Cynthia Quarterman, head of the Pipeline and Hazardous Materials Safety Administration, has said the U.S. agency expects to publish draft regulations requiring that DOT-111 railcars be retrofitted to address safety concerns. The agency's proposal is intended to fix a dangerous design flaw in the rail cars, which are used to haul oil and other hazardous liquids throughout North America.
Canadian officials had said the oil carried by that freight train had been misclassified as a less dangerous type of crude and they urged U.S. and Canadian regulators to ensure dangerous goods are accurately labeled.
Another key issue is whether railroads should be required to employ a minimum of two workers per train. The train that exploded in Quebec had only one engineer, who wasn't with the train at the time of the accident.
