Berkshire’s BNSF to Add Surcharge on Older Oil Tank Cars

Repost from Bloomberg News

Berkshire’s BNSF to Add Surcharge on Older Oil Tank Cars

By Thomas Black, Dan Murtaugh and Lynn Doan, Oct 24, 2014

BNSF Railway Co. plans to apply a $1,000 surcharge for each older tank car that hauls oil, as the railroad owned by Warren Buffett’s Berkshire Hathaway Inc. encourages shippers to scrap the puncture-prone cars.

The charge, which will take effect Jan. 1, will add about $1.50 a barrel to the cost of shipping oil across the country. It’s the first one announced by a major U.S. railroad for older cars known as DOT-111s, and won’t apply to cars called CPC-1232s that are built to higher standards adopted in October 2011, according to a BNSF notice.

The Obama administration in July proposed phasing out thousands of the older tank cars within two years and lowering speed limits as part of new rules to reduce the risk of hauling crude by rail. The plan followed a series of fiery accidents, including the derailment and explosion of a crude train last year that killed 47 people in the Canadian town of Lac Mégantic.

The extraction of oil from shale fields with limited pipelines, such as in North Dakota’s Bakken, caused U.S. rail carloads of crude to surge to 415,000 last year from 9,500 in 2008, according to the Transportation Department.

Mike Trevino, a spokesman for BNSF, confirmed the surcharge notice.

Tank cars typically hold about 700 barrels of oil, which means the surcharge would boost the cost of shipping in older cars by $1.50 a barrel. The cost to ship crude by train to East Coast refineries from North Dakota is about $9 to $10 a barrel, San Antonio-based Tesoro Corp. said in a September presentation.

BNSF, which operates tracks that connect into the Bakken and other shale oil fields, said in February it plans to order 5,000 new crude tank cars with safety standards higher than the CPC-1232s in an effort to push shippers toward safer cars.