The Fuse

On the Move: The Future of Crude Transport by Rail

by R. Kress | July 23, 2015

A BNSF train derailment and oil spill in northeastern Montana last week brought to light once again the inherent risks in transporting crude throughout the country. With 35,000 gallons of oil spilled, the cause of the crash remains under investigation—although federal officials have said that the train was not speeding at the time of the crash and no fireball or explosion occurred during the accident,

But with the domestic shale boom and higher demand for oil on the coasts than near the well sites in the middle of the country, transporting crude on trains will remain a risk that companies are willing to take—as long as it’s profitable to move the oil by rail.

With the domestic shale boom and higher demand for oil on the coasts than near the well sites in the middle of the country, transporting crude on trains will remain a risk that companies are willing to take—as long as it’s profitable to move the oil by rail.

“They will find a way to get it to market. If you shut down the rail, they’ll truck it,” Robert Rapier, a veteran analyst with Energy Trends Insider, told the Fuse.

“There’s no way to [transport crude] with zero risk,” said Rapier, a chemical engineer who worked for ConocoPhillips in Montana and was very familiar with the process of transporting oil out of the Bakken formation—the same source of the oil that spilled in Montana last week. “If oil production is legal in that state and there are markets on the coasts that are significantly more attractive than local ones, producers will find a way to move it as long as the economics justify it.”

While the economics justify crude transport to the coasts, there are other implications to be considered. Although there were no fatalities in the most recent derailment in Montana, rail is a riskier option than pipelines, according to a 2014 study from the U.S. State Department that examined the potential impact of the now-vetoed Keystone XL Pipeline. That analysis showed that moving oil by rail results in an average of six deaths per year more than in pipeline transport. A 2013 study from the Manhattan Institute reiterated the point, finding that rail transportation was three-and-a-half times as likely as a pipeline system to suffer a safety lapse.

“The Keystone Pipeline opponents believe if they shut down the pipeline they can shut down the oil. That’s not the way the market works…A pipeline infrastructure would be the best-case scenario,” Rapier explained. “We’d still have accidents. But you’re an order of magnitude safer doing it by pipeline.”

The Association of American Railroads (AAR), predictably, has a different perspective on the merits of pipeline and rail transportation of crude.

“Both transportation modes are required to move this product to meet the requirements of America’s energy renaissance,” Ed Greenberg, spokesman for the AAR, told the Fuse via email. He declined to comment on the specifics of the most recent oil spill in Montana as his organization awaits the final results of an investigation. But he did comment on overall safety of transporting oil by rail: “When it comes to moving crude oil, 99.99% of cars containing [it] arrive safely. That said, the goal of America’s freight railroads remains zero accidents and we will continue to work hard at preventing incidents.”

One issue of controversy is the tank cars themselves—freight railroads primarily use cars that are supplied by the company shipping them. For the AAR, advancing the safe transport of crude oil requires the Department of Transportation (DOT) to take more action in regulating tank cars. The organization recently filed an appeal against the new tank car rule, saying it does not adequately address specific safety concerns.

“[The AAR] is urging the DOT to close the gap in the rule that allows shippers to continue using tank cars not meeting new design specifications,” Greenberg said. “As the transportation provider, we take [our] responsibility very seriously…and our industry has long advocated tougher tank car standards.”

The tank car model involved in last week’s spill in Montana was a CPC-1232, intended as an upgrade to the DOT-111 based upon recommendations from the AAR. Among other safety improvements versus the DOT-111, the CPC-1232 is outfitted with a thicker tank skin, designed not to puncture as easily as older models. A BNSF spokesman said that five cars leaked the oil in Montana last Thursday and that they were the upgraded CPC-1232s—reinforcing recent concerns following other incidents that their safety improvements are still not adequate.

Rule on stabilizing the oil is very important

Energy Trends Insider’s Rapier noted that in this most recent spill, even though the new safety measures were not enough, one rule recently put in place might have been a lifesaver: the oil had been stabilized, which reduced the risk of explosion on impact.

Even though the new safety measures were not enough, one rule recently put in place might have been a lifesaver: the oil had been stabilized, which reduced the risk of explosion on impact.

A new rule from the North Dakota Industrial Commission went into effect on April 1st of this year—followed by further federal regulations a month later. These rules mandated that all oil produced in the Bakken must be stabilized for transportation due to its increased risk of flammability.

Rapier explains: “It’s particular to the Bakken, that kind of oil. You’ve got a lot of components in [it] that ignite easily.”

Rapier noted that conversely, if a lit match is thrown into a barrel of diesel, it would not ignite. Oil from the Bakken, on the other hand, presents a much higher flammability risk that needs to be managed: “By removing some of these components, it’s not nearly as easy to ignite. Everywhere else, oil is not as light as it is [in the Bakken].”

But the risk of transporting oil, specifically from the Bakken, is paramount when considering safety—over the past three years, the number of barrels moved from the Bakken to the West Coast has skyrocketed.

In the figure below from the Energy Information Administration, the trend is apparent: since around August 2012, oil from the Midwest and specifically the Bakken Formation (represented in green in the graphic) has grown virtually unabated except for some dips when the price of oil dropped.

crudebyrail

With more crude oil rail traffic, more accidents may seem inevitable—despite the Federal Railroad Administration (FRA) releasing new data this spring saying that 2014 was the safest year to date for American freight rail operations. The AAR touts this statistic as a sign that the industry is trending toward a safer future. But a study from the New England Center for Investigative Reporting (NECIR) found that certain areas are getting worse: “Accidents involving fires have at least doubled in the past year…hazardous materials releases have increased two years in a row…the same agencies issuing new safety rules themselves expect derailments to more than double over the next few years.”

With an increase in crude oil rail traffic, more accidents may seem inevitable—despite the Federal Railroad Administration (FRA) releasing new data this spring saying that 2014 was the safest year to date for American freight rail operations.

NECIR researchers, using data from the FRA, underscore the fact that while overall safety may be improving, incidents most threatening to the safe transportation of crude oil by rail are on the rise.

Trainincidents

Source: NECIR

The AAR did not respond to The Fuse’s inquiry by the time of this posting on this particular divergence between its statistics and the information unearthed by NECIR. In the past, the organization has defended its safety record by saying that the rate of accidents is unchanged—the incident count has risen only because the number of overall crude transport by rail is increasing.

“The statistics are pretty clear,” Rapier said. “We’re going to see [accidents] as rail ramps up…it’s just inevitable.”

 

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