Analysis: After crude-by-rail accidents, experts mull U.S. oil market impact

Thu Jan 23, 2014 7:28am EST
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NEW YORK (Reuters) - A spate of high profile crude-by-rail accidents is making oil analysts consider how tighter rail safety standards could impact U.S. oil markets, by potentially crimping a mode of transport that has grown exponentially amid the shale drilling boom.

Any regulation or industry-driven move to hastily sideline a fleet of some 75,000 older tank cars commonly used for shipping crude could roil U.S. oil logistics, boost costs for refiners, and even hit output from North Dakota's giant Bakken field, oil analysts said.

The scenario that many view as more likely -- where older railcars could be gradually retrofitted or retired -- would be less disruptive but still raise transportation costs.

Tank cars known as DOT-111s are used to transport most of the 10 percent of U.S. oil production, or around 800,000 barrels per day, that is shipped by railroad. The cargoes have surged over the past half-decade, offering drillers in fast-growing shale plays like the Bakken a quick and flexible way to send barrels to consumer markets without relying on limited regional pipelines.

DOT-111 railcars built before 2011, which have been involved in several accidents, are under scrutiny for safety issues that make them more likely to puncture in a derailment.

Newer cars feature thicker steel and protective plates and fixtures, but the U.S. Department of Transportation (DOT) has so far allowed older cars to stay in circulation, even as the Association of American Railroads has called for their "aggressive" retrofitting.

Although the vast majority of crude-by-rail shipments arrive safely, pressure has been mounting to boost safety after a runaway train exploded in Quebec last summer, killing 47, and a collision in North Dakota last month produced a massive fireball, caught on video. Over the weekend, a train carrying North Dakota crude derailed in Philadelphia, although there was no fire or injuries.

"I view this as a potentially hugely significant tail risk," said Credit Suisse's Jan Stuart, referring to how new crude-by-rail safety measures could impact Bakken region oil logistics or production.

So far, the Department of Transportation has set a schedule for next year to draft new regulations, including updated tank car specifications, but it is facing pressure to move faster.   Continued...

National Transporation and Safety Board (NTSB) member Robert Sumwalt (R) views damaged rail cars at the scene of the BNSF train accident in Casselton, North Dakota January 1, 2014 in this handout provided by NTSB. REUTERS/NTSB/Handout via Reuters