Crude oil shipped by railroad from North Dakota is drawing fresh scrutiny from regulators concerned that the cargo is adding environmental and safety hazards, something that analysts say could raise costs.
The U.S. Federal Railroad Administration is investigating whether chemicals used in hydraulic fracturing are corroding rail tank cars and increasing risks. Separately, three pipeline companies including Enbridge Inc. warned regulators that North Dakota oil with too much hydrogen sulfide, which is toxic and flammable, was reaching terminals and putting workers at risk.
The oil industry and U.S railroads are resisting the Obama administration’s attempt to boost safety standards for the type of rail car involved in a fiery, fatal explosion in Canada, citing costs and technical challenges.
Industry groups say it is impractical to retrofit tens of thousands of existing tank cars used to haul oil, even as they have adopted voluntary standards to ensure that cars ordered after October 2011 meet tough requirements recommended by federal transportation experts following a deadly ethanol train derailment and explosion in Illinois two years earlier.
BISMARCK, N.D. — The percentage of North Dakota oil shipped by pipelines has dramatically slipped in the past year as producers have turned to trains to reach faraway U.S. refineries where premium prices are fetched based on foreign crude prices.
But state and industry officials believe the pendulum may be swinging back in favor of pipelines as the price differential narrows between domestic and overseas crude.
A lot is being written about reducing America’s dependence on foreign energy; and increased domestic exploration of crude oil and natural gas is paying meaningful dividends to railroads – and, by extension, to their workers, whose jobs, wages and benefits are being made more secure.
In North Dakota, where the Bakken Shale reserve is being drilled, some 450,000 barrels of crude oil daily are being pumped – so much that pipelines are at capacity and BNSF and Canadian Pacific (Soo Line) tank cars are originating up to 300,000 barrels of crude oil daily to refineries along the Gulf Coast. In fact, the state estimates that as drilling expands, railroads could be hauling as much as 700,000 barrels of the black gold in tank cars.
In western Canada, meanwhile, CP and Canadian National are hauling increased quantities of crude oil from the Alberta tar sands south across the border, destined to refineries along the Gulf Coast – a 1,700-mile rail route through Montana, South Dakota, Nebraska, Kansas, Oklahoma and Texas.
Union Pacific, which is sharing in the southbound haul of crude oil, also reports sharp increases in drilling and construction materials headed north to the oil drilling fields. Kansas City Southern is gearing up for southbound loads of crude oil to Texas and Mexico, where new refinery terminals are under construction.
As for natural gas drilling, the Marcellus Shale field, stretching underground from Ohio to Pennsylvania and into West Virginia, is providing CSX and Norfolk Southern with sharp increases in carloads of sand, cement, drilling rig parts, chemicals, pipe and rock headed to the drillers. As natural gas drilling increases, even more carloads are in store for CSX and NS, which serve the Marcellus Shale region.
NS says it has quadrupled the number of carloads of materials headed to drillers, growing to a current 24,000 carloads annually in just two years, while CSX is hauling some 13,000 cars annually of materials to the drillers. There is also a smaller backhaul of waste and debris.
NS said it has hired – or is hiring – an additional 200 conductors to handle the increased business.
Then there is the growth of ethanol, which has soared from 2 billion gallons of production annually to 13 billion gallons of the past 10 years – much of it moving by rail. Federal law requires all gasoline to include a 10 percent blend of ethanol, and European nations are increasing their imports of ethanol from the U.S.