Railroading’s Big Oil Boom

By Beacon Staff

On Dec. 30, BNSF Railway executive chairman Matthew Rose told the Dallas Business Journal that his sprawling 32,000-mile railroad would move 1 million barrels of crude oil every day by the end of 2014, nearly a seventh the total amount that was produced in the United States in 2012.

For railroad companies, including BNSF, the movement of oil-by-rail has become an economic windfall. In 2008, Class 1 railroads, which include the largest rail companies in America, transported just 9,500 carloads of crude oil. Five years later, in 2013, they were projected to move 400,000 carloads, due in large part to the Bakken oil boom in North Dakota. Some of those cars travel across Northwest Montana everyday, through communities like Columbia Falls, Whitefish and Libby.

But the oil-by-rail boom has not come without a price. Just a few hours after Rose made his prediction for the New Year, one of BNSF’s oil trains derailed and exploded in the small town of Casselton, North Dakota. It was the fourth major rail accident involving crude oil in North America in six months, including a deadly wreck in Quebec. No one was injured in Casselton, but the town’s mayor said it would have been a different story if it had happened just a mile or two down the tracks.

“We got lucky,” Mayor Edward McConnell told the Beacon. “We definitely got lucky, because if that had gone off in town, we’d be having funerals today.”

The cause of the Dec. 30 wreck is under investigation by the National Transportation Safety Board. Three days after the accident, the U.S. Department of Transportation’s Pipeline and Hazardous Materials Safety Administration issued a safety alert to the general public, particularly communities along rail lines. The alert warned that recent accidents have shown that oil being shipped from the Bakken region may be more flammable than traditional heavy crude. Spokesperson Joe Delcambre Jr. said the alert served as a reminder to shippers and railroad companies that any crude shipped from the Bakken must be properly classified and shipped in the appropriate tank car or container.

In 2008, U.S. crude oil production had fallen to an all-time low of 5 million barrels per day. But hydraulic fracturing technology, or “fracking,” turned that trend around in 2009 and by the summer of 2013, the United States was producing 7.5 million barrels of crude per day. Hydraulic fracturing involves pumping a high-pressure mixture of water, sand and chemicals into a well to create cracks underground that allow oil and gas to be brought to the surface. Nowhere did this become more prevalent than North Dakota, which overtook California and Alaska in crude production in 2011 and became the second-largest oil producing state behind Texas.

By mid-2013, North Dakota was producing 900,000 barrels of oil every day.

“The growth in production out of North Dakota has been unbelievable,” said Tom O’Connor, a principal of ICF International, a Virginia-based energy-consulting firm. “Even people inside the industry are stunned.”

The Bakken boom happened so fast that there was not enough pipeline space from North Dakota to the refineries on the coast. That’s where the railroad companies stepped in. Using 100-car unit trains (each car carrying 30,000 gallons, or 714 barrels of oil), railroads like BNSF were able to move the Bakken crude to market before additional pipelines could even be permitted or built.

Although moving crude through pipelines can be cheaper, oil producers quickly found that railroads offered one advantage: a train could go anywhere at anytime, including places where it would not make economic sense to build a pipeline. Most pipelines in the U.S. travel to the Gulf Coast, where nearly half of the nation’s refineries are located. According to O’Connor, building a pipeline to the refineries on the West Coast, across the Rocky Mountains, would be an incredibly expensive project. According to BNSF spokesperson Roxanne Butler, the railroad operates one crude oil train every day through the Flathead Valley to refineries in Washington and Oregon.

“We’ll have crude-by-rail until the pipeline infrastructure catches up, but sometimes it won’t make sense to build a pipeline in some areas,” O’Connor said.

The rapid increase in crude oil being moved on North America’s railroads went relatively unnoticed until the night of July 6, 2013. Shortly after 1 a.m., a runaway Montreal, Maine and Atlantic Railway oil train derailed and exploded in downtown Lac Mégantic, Que. Forty-seven people were killed in the blast and 30 buildings destroyed. Later in 2013, three more crude oil trains derailed and caught fire in Alberta, Alabama and North Dakota.

Graphic by Steve Larson | Flathead Beacon; SOURCE: BNSF Railway, Association of American Railroads, Federal Railroad Administration Office of Safety Analysis – Click to enlarge graphic

Soon after the Lac Mégantic wreck, the Federal Railroad Administration issued an emergency order, requiring railroad companies to adhere to new safety regulations when moving flammable liquids. Since then, trains carrying hazardous materials cannot be left unattended on main line or side tracks; when a train is left unattended the locomotive doors must be locked and the operating control handle, or reverser, must be removed; and employees responsible for securing the train must tell a dispatcher how many brakes have been set on each car before leaving.

The recent wrecks have also put railroad tank cars under scrutiny. The Pipeline and Hazardous Materials Safety Administration is currently considering new rules requiring tank cars to be built to tougher standards or upgraded in order to prevent them from rupturing in the event of a derailment. According to the Association of American Railroads, which supports the tougher regulations, there are roughly 92,000 tank cars currently moving flammable liquids but only 14,000 cars are built to current standards.

According to Fred Frailey, a writer for Trains Magazine, it would be a costly and timely endeavor to update the entire fleet. But Frailey and other industry observers say railroad companies will likely embrace tougher standards in order to increase safety.

“The railroad industry focuses on safety because an unsafe railroad is not a profitable railroad,” Frailey said.

Estimated on first three quarters annualized – SOURCE:AAR

According to the Bureau of Labor Statistics, railroads are safer than trucking and air transportation. Between 1980 and 2012 train accidents fell by 80 percent. The Association of American Railroads also touts that 99.997 percent of the approximately 1.7 million carloads of hazardous materials moved on railroads every year arrive at their final destination safely. Trains also consistently spill less crude oil than pipelines, according to the Association of American Railroads. Between 2002 and 2012, 19.9 million gallons of fuel were spilled in pipeline accidents; during that same time period, 95,000 gallons of crude oil were spilled in rail accidents.

Butler, the BNSF spokesperson, said the railroad has a strong safety record and is constantly working on improving its performance. According to the Federal Railroad Administration, BNSF had 473 reportable train accidents from January to October 2003; during that same time period in 2013 it had 290.

“BNSF believes that every accident and injury is preventable. Operating free of accidents and injuries has long been part of BNSF’s vision and our focus has been on preventing accidents in the first place,” Butler said in a statement to the Beacon, adding the railroad company planned on spending more this year than the record $4.3 billion it spent on infrastructure in 2013.

But record spending is little comfort to Casselton’s mayor. McConnell said a few days after the derailment that life was slowly returning to normal but some residents were still “fearful” as trains passed through town.

“We need to have an assurance that this doesn’t happen again,” McConnell said. “If you’ve got that stuff coming through town, you better make sure the tracks are safe.”

Soren Koetter, center, and Mike Chappuis, with the Kalispell Fire Department, work to cap a simulated chlorine spill during a hazardous materials training exercise in Whitefish on Friday, Sept. 27, 2013. – Greg Lindstrom | Flathead Beacon

Flathead County Sheriff and Office of Emergency Services Director Chuck Curry said local first responders have worked with BNSF in the past on how to respond to derailments involving hazardous materials. In September, BNSF brought a training car to Whitefish and let local firefighters run through drills simulating various gas leaks and spills. Since 1996, the company has trained more than 60,000 first responders on the equipment.

“We’re as prepared as we can be,” Curry said. “(Incidents like Casselton) are certainly concerning but it’s not a new concern because we’ve had hazardous materials coming through this valley as long as there have been rails here.”

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