DOT Issues New Rail Regulations for Oil

August 21, 2014

The Department of Transportation (DOT) recently unveiled new regulations intended to improve the safety of transporting crude oil by rail. Ever since a train carrying Bakken crude into Canada derailed in 2013, killing 47 people, many have been concerned about transporting oil via rail car.

When Canada's Transportation Safety Board released its report on the accident just this week, the report listed a number of factors that contributed to the disaster, including poor risk management and maintenance practices. But according to Kenneth Green, senior director of natural resource studies at the Fraser Institute, the report did not cite deficient rail car construction as the reason for the accident, nor did it identify the nature of the crude oil it was carrying as the problem. 

The DOT's proposed regulations include requiring existing rail cars to be upgraded, setting speed limits on trains carrying oil and manufacturing new rail cars to higher standards. According to Green, the regulations are not without their costs:

  • Retrofitting existing rail cars will cost between $30,000 and $40,000 per car. Retrofitting the 78,000 cars that would need upgrading would cost somewhere from $2.3 to $3.1 billion.
  • The costs of transporting oil will only increase, and those costs will be passed down the line to consumers, raising prices of gasoline as well as products derived from oil.
  • There is already a rail car shortage. At the end of the second quarter of 2014, the backlog for new cars was 52,589. Manufacturers can only produce 35,000 cars a year. The new standards would only exacerbate this shortage.

Green notes that the regulation could very well make oil transport safer, and he suggests that there is the possibility that insurance rates might drop in response to the new safety standards, though they might also rise to cover the costs of the more expensive rail cars.

According to Green, many have targeted Bakken crude oil as being "uniquely flammable." In fact, the notion that Bakken crude was more volatile than other oils was the main reason that the DOT proposed the new safety standards. Unfortunately, it is not clear that Bakken crude is any different than other crude oil, says Green:

  • A study commissioned by the North Dakota Petroleum Council found that Bakken crude was very similar to light crude oil in all significant aspects, from vapor pressure to the temperature at which the oil could ignite to its boiling point.
  • Additionally, the crude did not contain high concentrations of flammable hydrocarbons.

According to Green, concern over the flammability of Bakken crude has distracted people from the question of the safest way to transport oil. While rail is a safer mode of transport than roadways, he writes, pipelines are safer than both. 

Source: Kenneth P. Green, "Flash Point: New Oil-by-Rail Rules," The American, August 20, 2014. 

 

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