Fi­nally, ac­cu­rate data for oil by rail

50-fold jump raises safety ques­tions

National Post (Latest Edition) - - FINANCIAL POST - John Kemp in Lon­don

More than one mil­lion bar­rels of crude oil move by train across the United States ev­ery day, ac­cord­ing to data pub­lished for the first time by the gov­ern­ment on Tues­day.

The vol­ume of c r ude shipped by rail has in­creased more than 50-fold in five years, from just 630,000 bar­rels in Jan­uary 2010 to 33.7 mil­lion bar­rels in Jan­uary 2015, the En­ergy In­for­ma­tion Ad­min­is­tra­tion (EIA) re­vealed in its first monthly re­port on move­ments of oil by rail

Un­til now, in­for­ma­tion on oil ship­ments has been in­com­plete, partly con­fi­den­tial and scat­tered across a num­ber of sources. The As­so­ci­a­tion of Amer­i­can Rail­roads, in­di­vid­ual rail­way com­pa­nies, and the fed­eral gov­ern­ment’s Sur- face Trans­porta­tion Board, which reg­u­lates freight rates, have all pub­lished limited data on ship­ments.

The EIA has now brought to­gether the con­fi­den­tial data from the U.S. Sur­face Trans­porta­tion Board and Canada’s Na­tional En­ergy Board as well as its own in­for­ma­tion on pro­duc­tion and stocks in each part of the United States, to pro­duce the first com­pre­hen­sive pic­ture of crude-by-rail move­ments.

The data un­der­score how rapidly the mod­ern oil-by-rail busi­ness has grown. Ship­ments rose from al­most zero in 2008 to hit one mil­lion bar­rels per day (bpd) for the first time in the cur­rent boom in April 2014.

Rail ship­ments are run­ning at the high­est level since the Sec­ond World War, when oil was shifted from tankers to rail­cars to avoid be­ing sunk by sub­marines.

Rail­ways have be­come an es­sen­tial part of the Amer­i­can en­ergy revo­lu­tion. With­out the mas­sive unit trains haul­ing 100 tank cars or more loaded with crude from the shale fields to re­finer­ies, U.S. crude pro­duc­tion could not have grown so quickly over the past five years.

Ac­cord­ing to the EIA, rail­ways moved 10% of all U.S. oil pro­duc­tion in Jan­uary 2015, and 40% of pro­duc­tion from states in the Mid­west such as North Dakota, Colorado and Wy­oming.

The main con­sumers were re­finer­ies in Penn­syl­va­nia, New Jer­sey and Delaware, which ac­counted for al­most half of the oil shipped by rail at the start of this year.

Crude-by-rail has be­come es­sen­tial to East Coast re­fin­ers. Rail­ways de­liv­ered al­most half the crude pro­cessed by East Coast re­finer­ies at the start of 2015, ac­cord­ing to an anal­y­sis of EIA data.

Smaller quan­ti­ties of oil were de­liv­ered to re­finer­ies in Cal­i­for­nia and on the Gulf Coast in Texas and Louisiana, where crude-by-rail is more mar­ginal to re­fin­ery op­er­a­tions.

The surge in crude-by-rail ex­plains why both the rail­ways and oil ship­pers were slow to ap­pre­ci­ate the risks in­volved in car­ry­ing large vol­umes of oil in unit trains. Be­cause so lit­tle oil was trans­ported by rail prior to 2011 or even 2012, there was not much sta­tis­ti­cal in­for- ma­tion on the risks in­volved in car­ry­ing oil in unit trains.

The risk of de­rail­ments and train fires was al­ways present but hid­den and not ap­pre­ci­ated be­cause there were so few crude-car­ry­ing trains.

The dan­ger has only be­come ap­par­ent when the size of the busi­ness was scaled up by more than an or­der of mag­ni­tude. It is a familiar prob­lem with new tech­nolo­gies or tech­nolo­gies that un­dergo rapid growth.

But crude-by-rail has be­come so cen­tral to the U.S. oil busi­ness that the in­dus­try has strug­gled to for­mu­late an ap­pro­pri­ate safety re­sponse — even as the risks have be­come in­creas­ingly ev­i­dent fol­low­ing a string of dev­as­tat­ing train fires.

The in­dus­try is torn be­tween fear of a cat­a­strophic train fire in a ma­jor ur­ban area that could cause mass ca­su­al­ties and cost bil­lions of dol­lars in com­pen­sa­tion and clean up, and the need to fight or de­lay tougher safety stan­dards that could re­strict the avail­abil­ity of tank cars and dis­rupt the in­creas­ingly vi­tal flow of oil by tank car.

Ne­go­ti­a­tions be­tween the rail­ways, oil pro­duc­ers, re­fin­ers and the U.S. gov­ern­ment about new crude-by-rail reg­u­la­tions and tank-car safety stan­dards boil down to the ques­tion of how to bal­ance the safety im­per­a­tive of with­draw­ing older and less-se­cure tank cars as soon as pos­si­ble against the com­mer­cial im­per­a­tive of keep­ing them in ser­vice for longer to main­tain tank-car avail­abil­ity and keep the oil flow­ing.

Jim Wil­son / The New York Times

An oil train rolls through North Dakota, where the out­put of shale oil pro­duced by frack­ing has sky­rock­eted. The U.S. has yet to see a dis­as­ter like that in Lac-Mégantic, Que., but crude-by-rail ship­ments have soared with lit­tle scru­tiny.

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