Crude oil joins rail industry staples as key revenue producer
By Jarrett Renshaw, Mar 16, 2015 2:05pm EDT
(Reuters) – U.S. railroads generated almost as much money last year hauling crude oil and sand, largely used in hydraulic fracturing, as they did moving industry staples like field crops and motor vehicles, according to a Reuters’ analysis of newly released federal data.
The previously unreported company data submitted to the U.S. Department of Transportation provides the latest piece of evidence of the blossoming marriage between the energy and rail industries, forged on the back of the U.S. shale oil boom.
Led by Berkshire Hathaway-owned BNSF Railways, the seven largest railroads operating in the United States generated $2.8 billion in gross revenue from hauling crude oil in 2014, up nearly 30 percent from 2013, according to company data filed with the federal government and released earlier this month.
The $2.8 billion figure puts crude oil in sixth place among similarly classified products, trailing industry standards like coal, field crops and motor vehicles, the analysis shows. Sand and gravel, an often overlooked winner in the shale boom, generated $2.7 billion last year in gross revenue.
Crude oil provides the biggest return on a per-carload basis, drawing $5,700 in gross revenue for each car that originated on the network, more than double than what coal brings.
The continuing financial success comes as the industry faces threats from a massive drop in oil prices and impending new U.S. regulations aimed at public safety that could impose additional costs.
“Will the major carriers go belly up? No,” said Barton Jennings, a professor of supply chain management at Western Illinois University. However, short-line cariers that rely upon crude for the bulk of their business may be exposed, he said.
Overall, the seven major carriers reported U.S. profits of $14.4 billion last year, led by Union Pacific and BNSF, which combined accounted for 67 percent of the industry’s U.S. profits, the analysis shows.
KING CRUDE
The biggest player in the U.S. crude rail business is BNSF, which dominates North Dakota, home to the Bakken shale.
BNSF’s gross revenue from crude oil rose to $1.48 billion from $63 million in 2010. Gross revenue from hauling sand and gravel climbed to $651 million last year, a more than 300 percent jump from 2010.
The growth in crude and sand hauling helped BNSF boost profits, which climbed from $2.6 billion in 2010 to $4.4 billion last year.
(Reporting By Jarrett Renshaw; Editing by Jessica Resnick-Ault and Jonathan Oatis)
Repost from McClatchy DC [Editor: Incredible: The complaint says, “Despite BNSF’s distaste for the DOT-111 cars, (emphasis added) they are authorized bulk packaging for crude oil service.” “Distaste?” Really! Oh, and … the BNSF surcharge would suggest that $1000/car will help exactly whom if/when the next explosion occurs? Surely not those whose bodies and livelihoods are incinerated. See this story also at Bloomberg Business News and Courthouse News Service. – RS]
Refiners sue BNSF over fee on oil loaded in older tank cars
By Curtis Tate, McClatchy Washington Bureau, March 16, 2015
A trade group representing oil refiners has sued the nation’s largest hauler of crude oil in trains over a surcharge for oil loaded into older tank cars that have punctured and ruptured in numerous derailments.
The American Fuel & Petrochemical Manufacturers, a trade association for producers of gasoline, jet fuel, home heating oil and other refined products, sought an injunction last week in U.S. District Court in the Southern District of Texas to block BNSF Railway from imposing a $1,000 surcharge for every DOT-111 model tank car loaded with crude oil.
Tens of thousands of DOT-111 cars have carried a surge in domestic energy production, but their poor safety record in oil and ethanol train derailments has drawn fresh scrutiny from regulators, lawmakers and the National Transportation Safety Board.
BNSF hauls 600,000 barrels a day of crude oil, mostly from North Dakota’s Bakken region, to refineries on the east and west coasts. In October, the railroad announced it would impose a $1,000 surcharge on oil shipped in DOT-111 tank cars, effective Jan. 1.
But the trade group, which represents more than 400 companies, said in its complaint that BNSF asserted “unlawful regulatory authority” when it began imposing the surcharge.
The U.S. Department of Transportation regulates rail transportation, and until regulations require tank cars of a different design for oil shipments, the group’s complaint says that BNSF and other railroads are obligated by law to accept them in whatever cars the government currently allows.
“Despite BNSF’s distaste for the DOT-111 cars,” the complaint says, “they are authorized bulk packaging for crude oil service.”
One DOT-111 tank car holds about 30,000 gallons, or 700 barrels of oil. The complaint says the $1,000 surcharge adds $1.50 per barrel in rail transportation costs.
The trade group’s complaint says that BNSF’s surcharge causes “direct and substantial harm” to its clients and “breaches BNSF’s common carrier duty to ship hazardous materials.” By law, railroads must provide rail transportation on reasonable request.
Four crude oil trains have derailed and caught fire across North America since mid-February. One of them was a BNSF train that derailed earlier this month near Galena, Ill.
In all four derailments, the tank cars were a modestly improved version of the DOT-111.
More oil-train fixes: Feds order defective valves replaced on leaking cars
By Samantha Wohlfeil and Curtis Tate, March 13, 2015
Derailed oil tanker train cars burn near Mount Carbon, W.Va., Monday, Feb. 16, 2015. A CSX train carrying more than 100 tankers of crude oil derailed in a snowstorm, sending a fireball into the sky and threatening the water supply of nearby residents, authorities and residents said Tuesday. MARCUS CONSTANTINO — AP
WASHINGTON — The Federal Railroad Administration on Friday ordered rail tank car owners to replace defective valves never approved for installation on thousands of tank cars, causing oil to spill from moving trains.
The directive applies to a 3-inch valve installed on roughly 6,000 tank cars, and their owners have 60 days to replace them. Within 90 days, tank car owners must also replace 37,000 1-inch and 2-inch valves manufactured by the same company. While the smaller valves were not found to be defective like the larger ones, they were not approved for the tank cars.
The affected cars can be used in the interim, but none can be loaded with hazardous materials if they are still equipped with those valves after the deadlines.
The enforcement action comes after a story last month in McClatchy’s Bellingham Herald about 14 tank cars that were discovered leaking en route from North Dakota’s Bakken region to the Tesoro refinery in Anacortes, Wash.
Friday’s enforcement action is the second to follow an investigation launched after McClatchy reported on leaking cars in Washington.
On Thursday, the agency said it had sanctioned the operator of a North Dakota loading facility for not properly closing a valve on another oil car after McClatchy reported in January that the car arrived at the BP Cherry Point refinery in northwest Washington state with 1,600 gallons missing.
The 1-inch, 2-inch and 3-inch valves were all manufactured and sold by McKenzie Valve and Machining, a company in Tennessee. The Bellingham Herald could not immediately reach anyone at McKenzie, but left messages with the company Friday.
The Federal Railroad Administration also announced Friday that it was launching a full audit of the approval process for tank car components to determine why the unapproved valves were installed.
The Federal Railroad Administration said it would begin working immediately with the association, which is the rail industry’s principal trade group in the nation’s capital.
Sarah Feinberg, the FRA’s acting chief, said Friday that removal of the valves will help reduce the number of non-derailment releases of hazardous materials.
“Any type of hazardous materials release, no matter how small, is completely unacceptable,” she said in a statement.
Ed Greenberg, a spokesman for the railroad association, said Friday that it supported the order. Railroads don’t own most of the tank cars used to transport oil.
“Officials from our association will be working closely with the administration in reviewing the tank car valve approval process to ensure the agency is fully satisfied with the current approval requirements that are in place,” he said in a statement.
The Federal Railroad Administration’s order came about a month after crews discovered tank cars leaking oil from their top fittings on a handful of trains hauling different types of crude oil through Washington state.
In mid-January, a train loaded with Bakken crude needed to have more than a dozen leaking cars removed at three separate stops as it traveled through Idaho and crossed Washington state.
The train was headed from Tioga, N.D., to the Tesoro refinery in Anacortes.
In a report to the U.S. Department of Transportation, BNSF reported a total of 26 gallons of oil leaking from 14 cars. Tesoro reported two more leaking cars. The oil was found only on the tops and sides of tank cars, and no oil was found on the ground.
Crews had first noticed oil on the side of a tank car while the train was in northern Idaho, and after checking the rest of the train, removed that car, which had leaked about two gallons, according to BNSF spokeswoman Courtney Wallace.
After the train had crossed through the state, following the Columbia River to Vancouver, Wash., crews found that crude oil had leaked onto the top of seven more cars, which were removed from the train on Jan. 12. BNSF reported the incident to the state Department of Ecology on Jan. 23.
BNSF also reported that about 10 gallons total had leaked from six more cars removed in Auburn on Jan. 13.
Wallace said the railroad would work with customers and shippers to take the required actions.
“Although BNSF does not own the tank cars, nothing is more important to us than safely operating through the communities that we serve,” she said in a statement.
The state Utilities and Transportation Commission and the FRA investigated the cars that were pulled from the train in Vancouver, which led to the discovery that closure plugs on the valves caused damage to the valve’s seal, and when tightened, would press down on and damage the ball.
The cars involved were CPC-1232 model cars built after 2011, which some oil companies have started using after several fiery derailments caused concerns about older DOT-111 rail cars, which have been found more likely to puncture or burst.
However, newer CPC-1232-standard cars that lack features that reduce damage from punctures and fire exposure have performed no better in four recent oil train derailments in West Virginia, Illinois and Ontario.
The White House Office of Management and budget is reviewing a new tank car standard proposed by the Department of Transportation. It is scheduled for publication on May 12.
Wohlfeil, of The Bellingham Herald, reported from Washington state. Tate reported from Washington, D.C.
Oil industry must join U.S. railroads to boost train safety – regulator
By Patrick Rucker, Mar 13, 2015 6:06pm EDT
WASHINGTON, March 13 (Reuters) – Rail operators are going to great lengths to prevent oil train derailments but the energy sector must do more to prevent accidents from becoming fiery disasters, the leading U.S. rail regulator said on Friday.
Oil train tankers have jumped the tracks in a string of mishaps in recent months that resulted in explosions and fires.
Several of those shipments originated from North Dakota’s Bakken energy fields. Officials have warned that fuel from the region is particularly light and volatile.
Sarah Feinberg, acting head of the Federal Railroad Administration, said the energy industry must do more to control the volatility of its cargo.
“(We) are running out of things that we can put on the railroads to do,” she said. “There have to be other industries that have skin in the game.”
A national safety plan for oil trains, due to be finalized in May, would require trains to have toughened tankers, advanced braking and other safety improvements.
The plan, however, would do nothing to mute the dangers of the fuel itself.
As officials try to prevent mishaps, they will also highlight the energy companies that supplied crude oil involved in accidents, Feinberg said.
Officials want to identify publicly “the owner of the product when we talk about these derailments,” she said.
The American Petroleum Institute said it hoped to work with the rail industry and other stakeholders to prevent mishap.
“Our safety goal, along with the railroads, is zero incidents,” said Brian Straessle, a spokesman for the trade group.
While U.S. officials have warned for more than 12 months that Bakken fuel can be volatile, the verdict is mixed on whether that contributes to the intensity of accidents.
In September, the FRA determined that Bakken crude oil may be no more explosion-prone than other fuels carried by rail.
Ethanol, a corn-based gasoline additive, “poses a similar, if not greater, risk as (Bakken) crude oil when released from a tank car failing catastrophically and resulting in a large fireball type fire,” according to a study from the agency.
On Friday, the FRA said that about 6,000 tankers had a top valve that allowed small amounts of oil to escape. The agency said it ordered the fitting to be replaced and said it would work with industry to identify and replace defective parts more quickly.
That defect was not believed to have played a role in any mishaps, the FRA said.
(Reporting by Patrick Rucker; Editing by Dan Grebler, Bernard Orr)
