Tag Archives: Association of America of Railroads

Ca-ching: Oil-by-rail surge to benefit three commercial sectors

Repost from Benzinga
[Editor: Quick & dirty on the 3 sectors: Freight Car Designers And Refitters, Insurance Providers, and Emergency Services And Safety Training.  UNLESS … if we stop crude by rail in its tracks, the only CA-CHING will be in the alternative energy fields.  – RS] 

3 Sectors Expected To Benefit From The Oil-By-Rail Surge

Bruce Kennedy, Benzinga Staff Writer, August 11, 2014

It’s been just over a year since a freight train carrying crude oil from the Bakken shale fields in North Dakota derailed and exploded in a Quebec town near the U.S.-Canadian border, killing 47 people.

That accident, along with several others in its wake, drew attention to the enormous increase in shale oil now being transported from North Dakota and Canada by rail – and the vulnerabilities of that form of transport.

“More crude oil is being shipped by rail than ever before, with much of it being transported out of North Dakota’s Bakken Shale Formation,” Department of Transportation Secretary Anthony Fox pointed out in a press conference last month. “In 2008, producers shipped 9,500 rail-carloads of oil in the U.S.; by just last year, that number skyrocketed to 415,000 rail-carloads — a jump of more than 4,300 percent.”

At that same press conference, Fox announced a rule-making proposal to improve the safe transportation of large quantities of flammable materials by rail – crude oil and ethanol in particular.

The increase in oil being transported by rail, as well as the new safety measures, might also be a windfall for companies in some related fields.

Freight Car Designers And Refitters

The proposed new safety rules for oil freight cars means a potential bonanza for firms like The Greenbrier Companies (NYSE: GBX). The Oregon-based group is a leading manufacturer and marketer of railroad freight car equipment in both North America and Europe.

Along with retro-fitting existing oil rail cars, Greenbrier is also designing a new genreration “Tank Car of the Future,”  with a thicker tank and bigger welds to ensure greater safety.

The new design, according to the Rigzone oil and gas industry web site, is “intended to meet anticipated new industry and government standards for tank cars transporting certain hazardous material.”

Insurance Providers

The Wall Street Journal reports that most, big North American railroads usually carry about $1.5 billion in liability insurance – but notes that accidents like last year’s deadly derailment and explosion in Lac-Mégantic, Quebec, can end up costing billions of dollars more in cost, especially if that accident happens in a populated area.

“Even if it happens outside of town, the massive damage to property and the environment — you’re stymied when you have these kind of crude oil fires burning hot and big for days,” Karen Darch, president of Barrington, Illinois, told the newspaper.

This could lead to an increase in the need for insurance.

“With experts predicting that oil spill derailments may increase in frequency over the next decade, the insurance industry must be prepared to address this new coverage threat,” says the law industry tracker web site Law360 earlier this year, “including the coverage issues and potential exposure which may arise from these disasters.”

Emergency Services And Safety Training

Earlier this year, Minnesota’s state legislature passed an oil transport law. The measure, reportedly worth more than $6 million, took fees generated in part from oil and railroad companies and put that funding towards tanker and pipeline disaster training, as well as more state transportation safety inspectors.

As former National Transportation Safety Board Chairwoman Deborah Hersman pointed out in a letter written this past January to the head of the Federal Railroad Administration, there is no mandate for the railroads to come up with comprehensive disaster response plans for oil train derailments

This means the rail carriers “have effectively placed the burden of remediating the environmental consequences of an accident on local communities along their routes,” the letter said.

According to the Association of American Railroads, the industry is providing $5 million to develop and fund specialized training for first responders handling a crude-by-rail accident, as well as developing “an inventory of emergency response resources and equipment for responding to the release of large amounts of crude oil along routes over which trains with 20 or more cars of crude oil operate.”

    DOT: Rail insurance inadequate for oil train accidents

    Repost from Politico
    [Editor: Significant quote: “For ‘higher-consequence events’ — such as the one in Lac-Mégantic — ‘it appears that no amount of coverage is adequate,’ the analysis says. That’s because the maximum amount of coverage available on the market is $1 billion per carrier, per incident….’You should know the railroads are used to running bare — without adequate insurance,’ said Fred Millar, an independent rail consultant who has criticized the government’s oversight of oil trains.”  – RS]

    DOT: Rail insurance inadequate for oil train accidents

    By Kathryn A. Wolfe | 8/6/14
    Several CSX tanker cars carrying crude oil in flames after derailing in downtown Lynchburg, Va. | AP Photo
    The maximum amount of coverage available is $1 billion per carrier, per incident. | AP Photo

    Most freight railroad insurance policies couldn’t begin to cover damage from a moderate oil train accident, much less a major disaster. And the Department of Transportation’s own database of oil train incidents is flawed because some railroads and shippers provide incomplete information that far understates property damage.

    Those conclusions come from a DOT analysis of its own rule proposed to address the series of troubling derailments across North America as shipments of oil by rail surge.

    The department issued the analysis Aug. 1, the same day it published its proposed oil train safety rule that is meant to create what Transportation Secretary Anthony Foxx calls a “New World Order” in oil trains regulations, including by requiring sturdier tank cars, tightened speed limits and improved brakes for the trains carrying an ever-greater amount of crude oil through communities from Southern California to Albany, N.Y.

    The rule would not expressly address the insurance issue, except to cite the general liability landscape as part of the need for the rule, which seeks to prevent the worst disasters from happening and mitigate damages from those that do.

    Gaps in insurance coverage became an issue after the July 2013 disaster in Lac-Mégantic, Quebec, which occurred when a train that had been left unattended careened down an incline, derailed and charred much of the downtown area, killing 47 people. The damages from that wreck could stretch into the billions of dollars, but the railroad responsible for the derailment carried only $25 million of insurance and wound up declaring bankruptcy.

    DOT’s analysis says most of the largest railroads commonly carry around $25 million in insurance, though that can rise to as much as $50 million for trains hauling certain kinds of hazardous chemicals. Smaller railroads — such as the one in the Lac-Mégantic disaster — often carry much less than that.

    But the agency’s Pipeline and Hazardous Materials Safety Administration estimated that the average derailment that spills crude oil will mean $25 million in total costs — bumping up against most of even the largest railroads’ current insurance limits.

    For “higher-consequence events” — such as the one in Lac-Mégantic — “it appears that no amount of coverage is adequate,” the analysis says. That’s because the maximum amount of coverage available on the market is $1 billion per carrier, per incident.

    “You should know the railroads are used to running bare — without adequate insurance,” said Fred Millar, an independent rail consultant who has criticized the government’s oversight of oil trains. “And the situation that is described in the [analysis] from Lac-Mégantic is only just the tip of the iceberg. The railroads basically know that they have cargoes that can cause massive, enormously greater death and destruction than what happened in Lac-Mégantic.”

    Devorah Ancel, an attorney for the Sierra Club, said insurance coverage “needs to catch up with the heightened risk that is part of this industry now,” because otherwise “taxpayers end up covering it.”

    The Association of American Railroads declined to comment, saying the group is still reviewing the pending rule and its supporting documents, including the regulatory analysis, and the American Petroleum Institute said it would file its comments as part of the public comment period.

    “We are working closely with regulators and the rail industry in a comprehensive effort to enhance safety through accident prevention, mitigation and response,” API said.

    But railroads know they’re underinsured and have groused about the status quo, particularly considering the fact that energy companies that ship oil and ethanol largely do not bear any liability for an incident once their product is loaded onto a train. And under “common carrier” regulations, railroads cannot refuse a shipment any kind of material assuming it meets proper regulations.

    Warren Buffett’s BNSF railroad, the pioneer in the oil train industry, has been requesting that railroads get some of the same protections now afforded to the nuclear power industry, using the Price-Anderson Act as a model. That law requires power companies to contribute to an insurance fund that would be used in the event of an accident, and it also partially indemnifies the nuclear power industry.

    The DOT analysis also points to a systemic weakness in the way the federal government collects data on derailments of crude oil and ethanol trains. In the section dealing with the probability of major rail accidents, the analysis observes that it’s “impossible to isolate the derailment rate of only crude oil and ethanol trains” due to “limitations in the reported data.”

    That’s because PHMSA requires an incident report to be filed only if the incident led to the release of a hazardous material — so derailments that did not result in a spill aren’t included. As a result, even some dramatic accidents aren’t included in the database — for instance, one earlier this year that resulted in a crude oil train dangling over Philadelphia’s Schuylkill River.

    Separately, DOT’s Federal Railroad Administration maintains data on derailments, including how much hazardous material was released — but doesn’t identify what type of substance it was. “As a result, it is impossible to use FRA data to identify crude and ethanol derailments,” the department said.

    And the data that is reported, particularly to PHMSA, is often inaccurate, largely because it is self-reported by railroads or shippers, according to the analysis. And these self-reports often underestimate the damages done in spill incidents.

    According to the analysis, damage information reported to PHMSA is typically “only the most basic costs” such as the value of spilled petroleum and damage to tracks and cars.

    “PHMSA believes that response costs and basic cleanup costs, when they are reported, do not represent the full costs of an accident of the response,” the report said.

    Underreporting damages, particularly for environmental cleanup costs, ends up hiding the true impact of a spill from policymakers, Sierra Club’s Ancel said. She hopes the pending rule will address the issue.

    “It is extremely important that the industry is required to adequately report — and there should be some sort of mechanism in the rule where the agency has inspectors that are ensuring that they are,” she said. “So not only should the industry be on the hook for reporting, but the agency needs to be able to have the resources to ensure that they are.”

      Time Magazine: A Year After a Deadly Disaster, Fears Grow About the Danger of Crude Oil Shipped By Rail

      Repost from Time Magazine
      [Editor: The message is getting out far and wide with this mainstream publication’s observance of the one-year anniversary of the killer wreck in Lac-Mégantic.  An intensely personal account of what it is like to live near these rolling “bomb trains.”  – RS]

      A Year After a Deadly Disaster, Fears Grow About the Danger of Crude Oil Shipped By Rail

      Sebastien Malo, July 10, 2014

      When 21-year-old mother Kahdejah Johnson was told two years ago that she’d secured a spot at the Ezra Prentice Homes, a quiet housing project in Albany, she felt confident she’d found a stable home to raise her newborn son. With its manicured lawns and tidy beige row houses, the Ezra Prentice Homes are a far cry from the crumbling housing projects of large cities. “When people come into town they’re like ‘These are your projects? These are condos!’” says Johnson.

      But today, Johnson is losing sleep over how close her house is to railroad tracks congested, day and night, with tanker cars carrying crude oil, visible just outside her bedroom window. The fear of an accident is so great that Johnson has taken to evacuating her apartment some nights, to spend the night at her mother’s home, further from the tracks. “Now I’m afraid to be in my own home,” she says. “Do you know how fast we could die here?”

      Albany is one of a growing number of cities where residents like Johnson fear the devastating consequences of accidents involving railcars filled with crude oil. They have reason to fear—on July 6, 2013, a train carrying oil derailed in the Canadian town of Lac-Megantic, causing an explosion that destroyed more than 30 buildings and killed more than 40 people. This past Sunday, Johnson and other Albany residents held a vigil to commemorate the Lac-Megantic derailment—and draw attention to the growing opposition to transporting crude oil by rail

      “Jo-Annie Lapointe, Melissa Roy, Maxime Dubois, Joanie Turmel,” participants in the vigil intoned into a microphone, naming Lac-Megantic residents killed in the explosions. In a line, they held portraits of each of the deceased and read their names, pinning the pictures to a black metal fence. “You may not say that they lived right next door to you, but they were your neighbors,” said Pastor McKinley Johnson, who officiated part of the ceremony. “You may not say that you understand all the language, but they’re your sister and your brother.”

      As in Lac-Megantic, oil tankers containing highly flammable crude oil from the Bakken oil fields in North Dakota and Montana roll right through their residential areas. Rows of train-cars filled with crude oil often stand idle for hours on the tracks that hug the curves of the housing project, so tightly only 15 feet at most separate the two in some areas. “Once I found out that these are the same tanks that were in Canada, I was like ‘Oh my God, someone pray for us, We’re in danger’,” Johnson said.

      This fear is a consequence of the unconventional oil boom in states like North Dakota, where for the last several years producers have been using hydrofracking techniques to pump oil previously locked in underground shale rock. The new oil fields have helped America’s oil production rise to a 28-year high. But that crude oil has to get to refineries, most of which are located in coastal cities—and much of that oil is moving by rail. Nationally, transport of crude oil by train has jumped 45-fold between 2008 and 2013, according to a recent Congressional Research Service report.

      While the U.S. has yet to experience a rail catastrophe on the scale of Lac-Megantic, the country has had its share of close calls. The National Transportation Safety Board counts five “significant accidents” of trains containing crude oil in the United States in the past year alone. The latest, in Lynchburg, Virginia, saw a train carrying crude Bakken oil derail and burst into flames in the town’s center this April, producing black plumes of smoke and billows of flames taller than buildings nearby. The crude oil also spilled into the James River, though one was injured.

      The worrying trend has opened a new front to the national environmental debate. Some 40 cities and towns across the country scheduled similar events to mark Lac-Megantic’s one-year anniversary. Many of the rallies will take place in the usual hotbeds of environmental activism —in places like Seattle and Portland—but also in blue-collar tows like Philadelphia and Detroit, where activists will voice demands ranging from a moratorium on oil-trains traffic to increased safety controls.

      But the problem has also presented environmentalists with a conundrum. One of the factors behind the rapid rise of railroad shipment of crude oil has been the shortage of oil pipelines, which could move greater quantities of oil from landlocked states to coastal refineries. Front and center to this debate is the multi-billion dollar Keystone XL pipeline project, which would connect the oil sands of western Canada to the Gulf Coast, but which President Obama has yet to approve—in part because of objections raised by environmentalists, who fear the potential for a spill.

      Fewer pipelines has meant more oil moved via rail. “If Keystone had been built we wouldn’t be moving nearly the volume of oil that we’re moving by rail,” said Charles Ebinger, the director of the Energy Security Initiative at the Brookings Institution.

      That has exposed the Keystone’s opponents to criticism that by standing in the way of pipeline projects, they are raising the risk of rail accidents. Though hazardous material like crude oil makes its way safely via rail 99.998 percent of the time, according to the Association of American Railroads, a plethora of research suggests that pipelines result in fewer spillage incidents, personal injuries and fatalities than rail. That includes an authoritative environmental review the State Department released last January, which concluded that “there is… a greater potential for injuries and fatalities associated with rail transport relative to pipelines.”

      Still, environmentalists like Ethan Buckner of ForestEthics, the group coordinating the string of events to commemorate the Lac-Megantic tragedy, reject that dichotomy. “The industry is trying to present Americans with a false choice between pipelines and rails,” he says. “We want to choose clean energy.”

      Back in Albany, the vigil was deemed a success, drawing a crowd of about a hundred. But Kahdejah Johnson wasn’t among them. Why not? Her fear, she said, got the best of her. “Honestly, I don’t really hang by my house,” she said. “I don’t like to be in that area if I don’t have to be there.” She is now on a waiting list to be transferred to another development—something she’s told could take up to four years. In the meantime, the trains will keep rolling.