Although the U.S. shale boom has resulted in an abundance of crude oil, the national pipeline infrastructure continues to be deemed insufficient to respond to the resultant transportation demands.
Railroads have emerged as a cost-sensitive option, but now that is coming under stern scrutiny from government regulators, particularly the U.S. Federal Railroad Administration. The argument is that the increased use of rail transit systems to transport cargoes of crude oil multiplies environmental hazards and, therefore, needs additional safety measures.
Principally, the FRA is looking into whether chemicals commonly used in the controversial process known as fracking could corrode the material of rail tank cars, thereby increasing risks of high-profile spillage.
This comes alongside complaints by several oil companies—including Enbridge Inc. (NYSE: ENB)—claiming that oil out of North Dakota containing excessive proportions of hydrogen sulfide was finding its way to terminals. Hydrogen sulfide is inherently toxic, and undue proportions can put terminal workers at serious risk.
It’s likely that this renewed attention comes after a recent incident in Quebec, Canada, in which tank cars blew up, causing 47 deaths. It’s worth noting that the oil came from North Dakota’s Bakken shale. The question now being pondered is whether the oil’s composition itself may have played a part.
Bloomberg reports:
“Crude historically has not been considered in the highest category of hazmat,” said Anthony Hatch, an independent analyst in New York who has tracked railroad companies for almost three decades. “The risks have been considered to be environmental, not to humans. Perhaps Bakken crude should be considered in a higher category.”
The problem, of course, is that additional safety would have to come at a cost—a cost borne by the oil producers and other operators. New investments in rail cars, new inspection protocols, and other safety additions could all pose a burdensome load—but given that oil continues to go for $100/barrel or higher, it’s unlikely that these impositions could seriously hurt oil production.
North Dakota today is the nation’s second-biggest oil-producing state and has churned out 790,000 barrels per day so far in 2013. More than 75 percent of North Dakota crude is transported by rail networks.
At present, an investigation is afoot over in Canada concerning why, exactly, the Quebec crash involved such an intense burning of fuel. It was unusually intense for normal crude oil, and samples have been drawn from the tank cars to analyze whether the Bakken crude’s composition might be conducive to such dangerous infernos.
The other issue at hand is whether the concentrated hydrochloric acid that is commonly used in fracking processes could be due to the remnants of it left in the crude that is subsequently loaded onto rail cars for transport.
Just back in July, an oil and gas sector standards lobby group sent off a letter to the American Petroleum Institute indicating just such a possibility. Thus, either the Bakken crude’s chemical composition or the presence of corrosive acid in the crude—or even both—may in fact be playing a part in increasing the risk involved in rail transport.
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Between Rail and Pipeline: How Should the U.S. Transport its Oil?
Possible solutions could involve replacing older rail cars, reinforcing car shells, checking for gas levels, and checking for hydrogen sulfide levels.
The results from the Canadian investigation will no doubt be analyzed closely in both the U.S. and in Canada. Already, the FRA has mandated that no train or other vehicles carrying certain specific hazardous materials be left unattended without permission, on main or side tracks (the Quebec train was unattended), as the Oil & Gas Journal reports. Some other mandates include disclosure of the number of hand brakes in use and other technical details.
While these are important issues, and while it is certainly justifiable for the government to pursue further safety measures, the real question isn’t about rails and oil but about pipelines.
Consider the long-delayed Keystone XL pipeline, for example, about which a decision has yet to emerge. If present rail routes for crude are indeed dangerous, it’s possible that extensive reinforcements could resolve those problems. It’s also possible that shale oil may simply be too dangerous to transport via rail.
Yet the Financial Post notes that by 2015, some 700,000 barrels or more of oil will be transported by rail per day. That rivals the Keystone pipeline’s rumored 850,000 bpd capacity. If we can’t have rails, then we must have pipelines, or we’ll go right back to depending on OPEC-imported crude.
And wasn’t the whole point of the shale revolution the achievement of independence from massive imports?
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