Fewer Oil Trains Ply America’s Rails

Wall Street Journal | April 6, 2015 | Column b y Alison Sider

Safety concerns, low crude prices depress train traffic

The growth in oil-train shipments fueled by the U.S. energy boom has stalled in recent months, dampened by safety problems and low crude prices.

The number of train cars carrying crude and other petroleum products peaked last fall, according to data from the Association of American Railroads, and began edging down. In March, oil-train traffic was down 7% on a year-over-year basis.

Railroads have been a major beneficiary of the U.S. energy boom, as oil companies turned to trains to move crude to refineries from remote oil fields in North Dakota and other areas not served by pipelines. Rail shipments of oil have expanded from 20 million barrels in 2010 to just under 374 million barrels last year, according to the U.S. Energy Information Administration.

About 1.38 million barrels a day of oil and fuels like gasoline rode the rails in March, versus an average of 1.5 million barrels a day in the same period a year ago, according to a Wall Street Journal analysis of the railroad association’s data.

Oil-train traffic declined 1% in the fourth quarter of 2014 as crude-oil prices started to tumble toward $50 a barrel. More recently, data from the U.S. Energy Department show oil-train movements out of the prolific Bakken Shale in North Dakota have leveled off as drillers there have begun to pump less, though oil-train shipments from the Rocky Mountain region have risen.

The slowdown comes as federal safety experts call for stronger tank cars. On Monday the National Transportation Safety Board recommended an aggressive five-year schedule for phasing out or upgrading older railcars used to haul crude-oil. A string of oil train accidents in recent months have resulted in spills, intense fires and community evacuations. The NTSB said railcars in use today rupture too quickly and aren’t fire-resistant enough.

A few incidents have involved more modern tank cars—the CPC-1232 model. The NTSB also said the new railcar’s design isn’t sturdy enough. “We can’t wait a decade for safer rail cars,” said NTSB Chairman Christopher A. Hart Monday in a letter to federal transportation regulators.
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Opponents of a fast phaseout have said that if tougher standards are introduced too quickly it will create a railcar shortage and make some oil train operations unprofitable.

Many refiners, including Philadelphia Energy Solutions, say they are still committed to shipping oil on trains. Chief Executive Phil Rinaldi in December said he likes that railroads don’t require long-term contractual agreements the way pipelines do. That allows his plant managers to buy crude only when it’s needed.

With pipelines, “you have to pay for that transit whether it makes sense or not,” Mr. Rinaldi said. “With rail, that’s not the case.”

Railroad operators have warned investors that their outlook for transporting crude is slightly weaker than it was last year, said David Vernon, a rail analyst at Sanford C. Bernstein & Co.

BNSF Railway Co., which is responsible for about 70% of U.S. oil-train traffic, operated as many as 10 trains a day last year, but is averaging nine a day now, a spokesman said.

Railroad officials don't like to talk about it, but oil trains carrying oil that regulators and railroads fear is more explosive than others are rumbling through many large cities. Russell Gold takes a look at where these oil trains are passing through. Photo: AP. (Originally published Jan. 15, 2014)

A spate of fiery derailments have also interfered with rail traffic this year.

At least four trains carrying crude have derailed since February, and in some cases tanker cars filled with oil have erupted into fireballs.

BNSF said it shut its main railroad track through northern Illinois for four days last month following an oil-train explosion in Galena, Ill., 160 miles west of Chicago, which caused delays. And deliveries to a major oil-train unloading terminal in Yorktown, Va., were halted for a week in late February following a CSX derailment in West Virginia that sparked a massive fire, according to Genscape Inc., an energy monitoring firm that tracks oil-train traffic.

Languishing oil prices also make oil-train transportation look too expensive when compared to shipping in foreign oil.

“With lower crude prices, the extra cost of rail makes it a tougher choice,” compared to importing tankers filled with foreign crude, said Sandy Fielden, an analyst with RBN Energy LLC.

Shipping oil across the U.S. on a train can cost from about $6 a barrel to nearly $12, depending on where the oil is pumped and where it’s going, Genscape data show. That mode of transport only makes sense when the price of American crude-oil is significantly cheaper than oil pumped overseas.

At times in recent years, U.S. crude sold for $10 to $20 a barrel less than oil pumped in places like Europe and West Africa. The big differential has made shipping American oil on trains an attractive option, said Colin Halling, an analyst at Genscape. “The wider that spread is, the better it is for the economics of crude by rail,” he said.

In recent weeks, the price gap between U.S. and Brent, the benchmark foreign crude, has narrowed to about $7 a barrel, making some oil-train shipments too costly at this time. But analysts at Barclays Bank PLC have forecast that the U.S. benchmark may sell for $13 a barrel less than its foreign counterparts, which would bolster oil-train shipments later this year.

—Bob Tita and Laura Stevens contributed to this article.

Write to Alison Sider at alison.sider@wsj.com

http://www.wsj.com/articles/oil-shipments-by-rail-take-slow-track-1428348393

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Fewer Oil Trains Ply America’s Rails
PAUSE, People of Albany United for Safe Energy
PAUSE is a grassroots group of individuals who have come together to promote safe, sustainable energy and fight for environmental justice. We engage the greater public to stop the fossil fuel industry’s assault on the people of Albany and our environment.