Crude by rail: EIA reviews traffic; rail shipper conference presenters address Quebec derailment

With U.S. crude-oil production at its highest level in two decades and outstripping pipeline capacity, producers are relying more on railroads to move crude to refineries and storage centers, according to an U.S. Energy Information Administration (EIA) report issued yesterday.

The amount of crude oil and refined petroleum products transported by rail reached 356,000 units in the first half, up 48 percent compared with the same 2012 period, the report states, citing Association of American Railroads data. Weekly carloadings of crude oil and petroleum products averaged nearly 13,700 in the period.

Railroads move about 700,000 barrels per day of both imported and domestic crude out of the 7.2 million barrels of crude oil the nation produces daily, based on the EIA's latest monthly output data. The jump in crude oil production from North Dakota — the second-largest oil producing state after Texas — accounts for a large share of the increased rail deliveries because there isn't enough pipeline capacity, EIA officials said.

More Bakken crude moving to market by rail has helped narrow the difference between the spot prices for Bakken oil and international benchmark "Brent" oil in recent months to its smallest gap — less than $5 per barrel — in more than 18 months, they said. The narrower spread reduces the incentive to ship oil to coastal refineries.

Crude by rail has been a hotter-then-usual topic the past few days since the deadly and destructive Montreal, Maine & Atlantic Railway Inc. (MMA) derailment occurred in Lac-Mégantic, Quebec, early Saturday. The accident raised concerns bout the safety of transporting crude by rail, with Canadian Prime Minister Stephen Harper among the skeptics.

Crude by rail and the Lac-Mégantic derailment certainly were hot topics at the Midwest Association of Rail Shippers' summer meeting held July 9 in Lake Geneva, Wis., which was themed "Riding the Rails to Economic Recovery." Several presenters addressed the accident, prefacing their comments by saying it was premature to speculate since the derailment still is under investigation and the causes are unknown.

Canadian government officials will need to take time to sort everything out and truly understand what happened, then "fix what needs to be fixed," said Watco Cos. L.L.C. Chief Executive Officer Rick Webb during his keynote address.

"I hope the Canadian and U.S. governments react intelligently and prudently to this," he said. "The California accident led to PTC, and PTC on the MMA would not have prevented this."

When the causes are determined, the rail industry needs to do what it can collectively to address them, said Teresa Perkins, BNSF Railway Co.'s general director-petroleum, during a "fuel by rail" panel discussion.

In terms of the accident's impact on tank cars, "who knows what it means" at this point, said GATX Corp. Vice President and Group Executive Paul Titterton at the beginning of his presentation on crude oil equipment. He later said it would be very expensive and a huge engineering challenge to add a heat-resistant sleeve or jacket to every tank car to help prevent the cars from exploding in an accident.

— Jeff Stagl