Transportation Systems Casebook/Crude

"Crude oil is defined as a naturally occurring, unrefined petroleum product composed of hydrocarbon molecules. The volatile and explosive nature of crude oil makes it a hazardous material requiring specialized procedures and equipment when handled or shipped to market….."

Worldwide uses for the wide ranging array of petroleum products derived from crude oil permeates nearly every facet of modern life. As a result, demand for this resource is high. Countries and corporations of the world compete with one another as they secure oil reserves in order to develop infrastructure and supply chains to mine this resource and get it to market. With the maturation of hydraulic fracturing (fracking) technology, the United States (US) has recently begun developing its oil reserves, most notably the Bakken Formation currently making it the leading oil producing country in the world. Canada has also been developing vast oil resources as well with the addition of the Kearl Oil Sands Mining projects.

Both US and Canadian reserves are expected to produce crude oil for decades to come and plans to develop infrastructure for the transport of crude oil to market have been enacted including the Keystone Pipeline. Progress on pipeline development has either stalled, like the Keystone, or is not sufficiently developed at this time for use as a viable mode to ship crude oil. As a result, the North American Oil producers have relied primarily on the freight rail system leading to a number of “growing pains” some of them costly in terms of damages to the oil market, the rail system, the environment and, unfortunately, human life. The Canadian rail line incident known as the “Lac-Mégantic rail disaster" occurring on July 6, 2013 causing the death of 47 townsfolk has become a “lightning rod” issue for the oil and rail industries to change rail safety procedures. Conversely, for every disaster brought to the discussion table, rail industry officials can point to scores of safety successes and provide legitimate arguments for pacing change over time. Crude oil rail safety has, therefore, become a “hot bed” issue with no easy solutions.

The Crude Oil Rail Safety case study presents detailed information regarding a list of Actors, a Timeline, Maps and Locations, Policy Issues, and a Narrative with background information on crude classification, rail operations, tank cars, crash history, Federal oversight, and current issues followed by a section with discussion and conclusions on this complex group of issues.

Annotated List of Actors

Oil Producers

http://oilshalegas.com/shalefields.html

• Bakken Oil Fields
• Kearle Oil fields (Tar sands)

Shippers

• American Petroleum Institute (API)
• Individual Petroleum Companies and Corporations

Railroads

Class 01

Consists of rail lines with operating revenues exceeding $319.3 million annually

• Canadian National (CN)
• Burlington Northern Santa Fe (BNSF)
• CSX Transportation (CSXT)
• Canadian Pacific (CP)
• Union Pacific (UP)
• Norfolk Southern (NS)
• Kansas City Southern (KCS)

Class 02 Regional Railroads

• http://www.american-rails.com/regionals.html

Class 03 Shortline Railroads

• http://www.american-rails.com/shortlines.html

Regulatory Agencies

US Department of Transportation

• Federal Railroad Administration (FRA)
• Pipelines and Hazardous Materials Safety Administration (PHMSA)

Transportation Canada

http://www.tc.gc.ca/eng/aboutus-menu.htm

Railroad Associations

• American Association of Railroads (AAR) https://www.aar.org/
• American Short Line and Regional Railroad Association (ASLRRA) http://www.aslrra.org/our_members/Railroad_Members/

Timeline of Events

• 1865 - The first tank car is invented by Charles P Hatch.
• 1869 - Wrought Iron tanks replace wooden ones.
• 1927 - The Interstate Commerce Commission (ICC) comes up with the first tank car specifications. These are based on designs recommended by the American Association of Railroads Tank Car Committee.
• 1930’s - Welding replaces riveted tank cars-this allows for pressurization.
• 1950’s - The Stub Sill tank car design, which incorporates the tank itself as a structural element of the car, replaces older models where the tank rides on a beam that runs down the center of the car. Tank cars gain capacity as a result.
• 1960’s - The DOT 111 Car replaces the DOT 103 as the most common non pressurized, general purpose tank car.
• 1966 – DOT Act of 1966 creates Federal Rail Road Administration. The Federal Railroad Administration (FRA) was created by the Department of Transportation Act of 1966.http://www.fra.dot.gov/Page/P0010 reference
• 1975 - Hazardous Materials Act of 1975 gives the United States Department of Transportation authority to regulate materials that could cause “unreasonable risk to health and safety or property when transported in commerce.”
• 1980 - The Staggers Rail Act of 1980 is passed – The act “gave the railroads the freedom to determine the routes of transportation, set rates for moving freight and streamline procedures for sale of rail lines. The act did set maximum rates that railroads could charge and procedures to prevent abuses by railroad companies. Since the act was passed, railroads have become more competitive and have increased their revenues and volume of traffic significantly. “
• 2008 - Congress Passes the Rail Safety Improvement Act
• 2009 - NTSB finds the DOT 111 cars have a “high incidence of failure when involved in accidents” and “…can almost always be expected to breach in derailments that involve pileups or multiple car to car impacts.”
• July 6th, 2013 - An unattended crude oil train derails in Lac Megantic, Quebec, killing 47 people and destroying much of downtown.
• August 2, 2013 - FRA issues Emergency Order No. 28, requiring railroads to properly secure rolling equipment. FRA also publishes a Safety Advisory recommending additional actions.
• August 2013-May 2014-Operation Classification, also called "The Bakken Blitz" takes place.
• February 21, 2014 - Letter to the Association of American Railroads outlines safety agreements made between FRA and AAR.
• February 25, 2014 - USDOT issues Emergency Order requiring stricter standards to transport crude oil by rail.
• May 7, 2014 USDOT - issues Emergency Order requiring railroad carriers to inform first responders about crude oil being transported through their towns and communities and for the immediate development of oil spill plans.
• August 1st, 2014 PHMSA issues NOPR Hazardous Materials: Enhanced Tank Car Standards and OperationalControls for High-Hazard Flammable Trains (HHFT)
• September 30th, 2014 Comments period concerning PHMSA Hazardous Materials closes
• October 2014 USDOT Inspector General initiates announcement of an audit of the FRA's enforcement of hazardous materials with emphasis on crude oil shipments.

Maps and Locations

CSXT

Encompasses 21,000 miles of track into 23 states, DC and both Canadian provinces of Ontario and Quebec. The company boasts serving the major markets in the Eastern US including 70 marine type terminals among the Atlantic and Gulf Coasts, Mississippi River, Great Lakes and the St. Lawrence Seaway. CSX operates in an array of markets including energy, industrial, construction, agricultural and consumer products. The company partners with Western rail companies to coordinate crude oil shipments Eastward. The company reported for 2014 3rd quarter an 8% revenue increase up from the prior year and a total revenue of 3.2 billion. Agricultural products edged a single percentage increase at 16% compared to industrial chemicals at 15% of which an apportion includes crude. The C&O Line connects the Midwest to the deepwater ports of Virginia. Some of CSX's longest trains traverse this route.

Burlington Northern Santa Fe(BN)

Consists of a 32,500 mile network operating in 28 US states and 2 Canadian provinces. BN delineates its business into the consumer, industrial, coal and agricultural categories. Financially, BN’s 2nd quarter report reflected total revenue of $5,735 million up a mere 5% compared to a year earlier. Surprisingly, the grain’s section was the highest increase with volumes up 8% while crude was deduced as primarily the root of increases in the industrial products market.

Canadian National (CN)

Based in Quebec with 21,000 miles of track reaching three coasts in the automotive, coal, fertilizer, food and beverage, forest, dimensional, grain, metals and minerals, petroleum and chemicals and specialty crops markets. CN specializes specifically to the US and Canada’s petroleum market in key regions including the Alberta Heartland, Oil Sands, Eastern Canada and the Gulf of Mexico. The company reported a 3rd quarter all time high revenue of C$3,118 million. This was a total increase of 16% with a 29% in the grain market followed by a 21% increase in the petroleum sector.

Canadian Pacific Railways

A transcontinental in both the US and Canada serving 14 main markets consisting of automotive, coal, energy, ethanol, fertilizer and potash, food products, forest products, grain, industrial, intermodal, oversize, sulphur, truck and trailer and wind energy markets. Specifically to crude, the rail offers full rail transportation services to both the Oil Sands and Bakkan Shale regions as well as the Marcellas Shale deposit. Carrier offers over 15,000 track miles and access to ports on both east and west coasts. Financially reported a 2014 3rd quarter record net income of $400 million with revenues rising 9% despite a 4% increase in operating costs. Crude’s share of the revenue snapshot accounted favorably at a 74% increase compared to US grain at 19% and Canadian grain at 17% increases.

Union Pacific (UNP)

The rail operates in 23 states with 31,800 miles of track. The company conducts business in the following markets; agricultural products, automotive, chemical, coal, industrial products and intermodal. The 2014, 3rd quarter report reflected an 11% revenue increase at $6.2 billion up from $5.6 billion in 2013’s same quarter. Crude oil was not specifically addressed in the financial record. However, industrial products were up 19% , chemicals up 6% and agricultural products up 19%.

Norfolk Southern (NS)

Operates among 22 states and 20,000 route miles including 10 river ports, 9 lake ports and claims the most extensive intermodal network in the East. NS reported 2014 3rd quarter revenue increases of 7% at $3 billion with chemical and grain both up 14% and 5% respectively.

Kansas City Southern (KCS)

One of the only class 1 rails extending well into Mexico with a total of 6,100 miles of track. The company serves grain, coal, chemicals, petroleum, industrial and consumer product markets. KCS and Savage Companies announced a joint venture to build and operate a multi-user terminal in Texas designed to bring unit train rail service from the Bakken.

Rail Car Product Distribution

Railcar Product Distribution

Policy Issues

There are three policy issues to examine:

Crude Oil Classification

Of the nine classes of hazardous materials, crude oil falls into Class 3, which consists of flammable/combustible liquids. For transport, each hazard class is divided into packing groups (PG). Flammable and combustible liquids are rated as PG I, II, or III, with I being the most volatile and III being the least. While PHMSA and NTSB have found that many shipments have been mislabeled as less volatile than they should have been, it is worth noting that the heavily scrutinized DOT 111 tank car is currently an acceptable container for all three packing groups.

New Tank Car Safety Specifications and Retrofitting or Phasing Out of Older Cars

Most of the groups involved agree that the DOT 111 cars, which represent most of the crude oil fleet, should be retrofitted with safety upgrades or retired from flammable liquids service. The parties disagree on how soon these cars need to be retrofitted or retired, and the safety specifications of the replacement cars.

Railroad Safety Operations

Modifications to Railroad operations have been proposed to enhance safety. These include more monitoring of train equipment via trackside sensors and more visual inspection, increased track inspection and maintenance, reduced speeds in all or some areas, and more personnel attending trains at all times.

Narrative of the Case

The complexity of Crude Oil Rail Safety stems from the multitude of factors that play into decision making at all levels of the crude oil supply chain. We have attempted to identify as many of the issues and provide as much reference information on the subject as possible.

Transport Canada and USDOT Proposed Regulation

Canadian and US Government agencies charged with oversight of the freight rail industry struggle with balancing regulation of the industry and allowing enough self-governance for oil and rail markets to remain competitive. Recent events have prompted swift action. Both Canada and the US have recently proposed and mandated changes to Rail operations and vehicle safety design involving crude oil shipments. Transport Canada has issued emergency and permanent directives similar to those proposed by the USDOT. Similarly, the USDOT has proposed rulemaking regarding Crude oil shipments in Federal Register, vol. 79, no. 148. The new rules have yet to be ratified with the comment period recently closing September 30th, 2014 and are subject to review and consideration per the rule making process.

Hazardous Materials Classification/Packing Group Designation

Crude oil is packaged by shippers, who are required to test it and designate the correct Packing Group (I-III) for rail shipments for High Hazard Flammable Trains (HHFT). The Bakken region’s oil characteristics vary in volatility from well to well. When asked to comment on how crude oil is handled, Dave Galt, Executive Director of the Montana Petroleum Association noted “Crude varies significantly in viscosity, boiling point and flammability. Some of it can be as volatile as gasoline and other times you can’t get it to burn with a torch.” Crude oil is defined as a naturally occurring, unrefined petroleum product composed of hydrocarbon molecules. The characterization of crude oil has traditionally been characterized by its geographic original source location. For example, Alaska North Slope Crude or the Bakken, but this does not adequately inform emergency responders, train engineers with information as to the inherent risks while in transit.

Crude oil is classified into three hazard groups and varies in boiling point and flammability. The Code of Federal Hazardous Materials Regulations 49 Part 172.101 table of hazardous materials lists crude oil specifically as “Petroleum Crude Oil, UN1267, Class 3” with packing group designated by Roman Numerals I, II, III. Packing Group I is the most volatile and generally more restrictive in its packaging requirements. Classification in itself can be difficult to determine throughout the transportation process. Shippers and oil companies are responsible for the classification testing. Regulations are being drafted and adopted to address these issues specifically to testing for boiling and flashpoint.

The emergency declaration posted February 25, 2014 prohibited the practice of re-classifying a flammable liquid as a combustible for the purposes of circumventing the rules prescribed in the packaging regulations of 49 CFR 173.

Testing crude oil is the responsibility of the shipper to be conducted within a reasonable timeframe in order to determine both flash point and boiling point. Both are used to determine the proper packing group. The test consists of first performing a distillation test which determines the initial boiling point (IBP). Results of less than 95 degrees Fahrenheit (32.22 Degrees Celsius) are classed as Packing Group I. IBP testing results greater than 95 degrees Fahrenheit then are further tested for flash point. Flash points less than 74 degrees Fahrenheit (23.33 Degrees Celsius) are classed as Packing Group II. Leaving those with flash points greater than 73 degrees Fahrenheit and IBP greater than 95 degrees Fahrenheit are classed as Packing Group III. Recall that the Emergency Order mandated that all crude oil shipments with a Packing Group III must be transported in accordance with the Packing Group I or II regulations.

In addition to these mandatory tests, shippers are required to perform additional tests frequently enough to ensure proper classification using the nine UN hazard classes in 49CFR parts 171 to 180 as a guide to properly classify their hazardous materials. The DOT Emergency Order requires at a minimum, the testing of vapor pressure, percentage of flammable gases, hydrogen sulfide, sulfur, and corrosively to steel and aluminum. Crude oil may contain hydrogen sulfide, which in high concentrations is a poisonous gas. It can be determined in the vapor phase by modification of test method ASTM D5705. Sulfur content, while required by the Emergency Order, poses no immediate hazard and is a characteristic required by the EPA as a combustion property. (Authors: Scott Blakely, Laboratory Services Manager Kesavalu Bagawandoss, Corporate Technical Director

After the derailments and explosions in 2013, FRA and PHMSA suspected that crude oil was not always being given the correct Packing Group designation. “Federal law requires rail customers to properly disclose and label hazmat shipments to ensure that appropriate rail cars are used and to assist emergency responders in case of an accident. To that end, in March 2013, PHMSA and FRA launched “Operation Classification,” a compliance initiative involving unannounced inspections and testing of crude oil samples from the Bakken region to verify that the oil is properly classified. In January 2014, based on data collected through Operation Classification, PHMSA issued a safety alert announcing that the type of crude oil being transported from the Bakken region may be more flammable than traditional heavy crude oil.”

New Tank Car Safety Specifications and Retrofitting or Phasing Out of Older Cars

Tank cars are somewhat unique among other cars. They are often some of the most expensive, costing between $120,000-138,000. They are also expensive to operate: tank cars are usually unable to be cleaned out after a shipment, so they are unable to backhaul, meaning they make their return trip empty. Partially because of this, the Interstate Commerce Commission (the railroad regulator prior to the US DOT) exempted tank cars from their common carrier model; that is, railroads were not required to make them available to shippers. Since they’ve never been required to provide them, the railroads themselves own very few tank cars. Most are owned or leased by the shippers of the product. In the case of crude oil in the United States, that is the companies who make up the American Petroleum Institute. These companies can choose to buy tanker cars, or lease them from tank car builders.

Oil is typically shipped in DOT 111 tank cars, also known as CTC-111A cars in Canada. They make up about 60% of the United States tanker fleet and more than that proportion in Canada. Their safety record has come under scrutiny; an NTSB Study responding to a 2009 derailment in Illinois found a “high incidence of failure when involved in accidents.” Both the FRA and the AAR support regulations requiring an increase in head and shell thickness, normalized steel, and better top fitting protection. FRA is still in the process of coming up with new tank car specifications. In July 2014 PHMSA came out with a Notice of Proposed Rulemaking that outlines the safety specification of new DOT Specification 117 cars. Since 2011, tank car builders have been producing CPC (Casualty Prevention Circular) 1232 cars, sometimes called “Good Faith” cars. These cars are built above current standards but would fall below standards proposed by PHMSA in the Notice of Proposed Rulemaking issued in July 2014. Additionally, some of the older (but not oldest) DOT 111 cars are candidates for retrofits that could bring them into compliance with new regulations. It is estimated that this would cost between $20,000-$40,000 per car.

Most parties involved agree that the older cars could be safer and should be retrofitted. Further, most everyone agrees that cars that cannot be retrofitted should be phased out of service. The timetable for this happening is what is being debated. DOT 111 cars have a service life of 30-40 years. Since the tank cars are usually owned by the oil producers, the API is not surprisingly the most reluctant to endorse immediately phasing these cars out. The API feels that retrofits and new tank cars are expensive. They are also ordering them anyway; they claim that there is a 24-30 month backlog on new tank cars. If all non-compliant cars were forced out of service, the API believes there would not be enough existing cars to meet demand. Further, the API believes that crude oil is the railroads responsibility while it is in transit. In a twist on the National Rifle Association’s “guns don’t kill people” argument, the API asserts that as long as the cars stay on the tracks, they are perfectly safe. Recently, BNSF, a railroad company that moves much of the crude oil out of the Bakken oil fields, made two announcements. One was that they would be ordering 5,000 new cars that would go beyond any regulations set to date. Their other announcement was a $1000 surcharge per pre-2011 DOT 111 car that has not been retrofitted, adding about $1.50 per barrel of oil shipped by these cars.

Table 2a

Enhanced Braking

“The US DOT proposes to require all HHFTs to be equipped with alternative brake signal propagation systems. Depending on the outcome of the tank car standard proposal and implementation timing, all HHFTs would be operated with either electronic controlled pneumatic brakes (ECP), a two-way end of train device (EOT), or distributed power (DP).”

Crude Oil Rail Operations

Rail operations vary between railroad companies. All companies are subject to Federal regulations set in title 49 by United States Department of Transportation (USDOT) which includes oversight from the Pipelines and Hazardous Materials Administration (PHMSA) and the Federal Railroad Administration (FRA). Rail operators with freight cars from multiple packaging groups (I-III) can be intermixed per USDOT regulations. Recent Federal regulation prohibits any crude tank cars from being classified lower than Packing Group II. With the amount of crude oil being shipped by rail most carriers have no need to mix regular freight when packaging trains. Like most regular freight train packages, the number of crude oil tank cars in HHFTs varies from package to package based on the availability of locomotives and destinations and number of tank cars to be shipped. Weight, height and width also a factor into train packaging. A typical sized HHFT carries 100-110 cars in a single train although some regular freight trains have been known to have more cars.

Crude Rail Speeds

The American Association of Railroads defines a “key train” as a train that carries 20 or more carloads or portable tank loads of any combination of hazardous material. Key trains, according to AAR’s operating practices, are restricted to a maximum speed of 50 MPH. Changes proposed by PHMSA would keep the speed limit at 50 MPH for any High Hazard Flammable Train (HHFT) carrying all DOT specification 117 cars. Trains that can’t comply with proposed braking requirements would be limited to 30 MPH. PHMSA also proposes three options for a 40 MPH speed limit, unless all of the cars in the train are DOT Specification 117 Cars: Option 1: 40 MPH Speed Limit All Areas Option 2: 40 MPH in Areas with More Than 100,000 People Option 3: 40 MPH in High Threat Urban Areas (HTUA) “After the accident, Canadian and U.S. regulators ordered all railroads to lock trains and stop leaving them unattended on main lines. Railroads voluntarily chose to slow those carrying crude oil and ethanol to 50 miles an hour. That won't decrease derailments, says Matthew K. Rose, executive chairman of BNSF Railway Corp., but it will reduce damage if one occurs.”

Route Selection

Current routes are selected by in accordance with existing regulation by the Rail Industry selecting a practicable route per the 2008 guidelines in 73 CFR 72182. PHMSA has recently proposed rail carriers consider 27 safety and security factors on August 1st, 2014.

Proposed Safety Regulations

Recent Crash History

On July 6th, 2013 the town of Lac-Megantic experienced one of the worst freight train disasters in Canadian history after a 74 car runaway train carrying crude from the Bakken Formation derailed at speeds in excess of 60 MPH causing a large explosion and fires from many of the tank cars. 47 townsfolk have been confirmed dead with 30 buildings destroyed in the 1-kilometer blast radius. The death toll of 47 due to the crash and resultant explosion makes it the fourth-deadliest rail accident in Canadian history,[10] and the deadliest involving a non-passenger train. It is also the deadliest rail accident since Canada's confederation in 1867. The last Canadian rail accident to have a higher death toll was the St-Hilaire train disaster in 1864.[11” The investigation regarding into the chain of events leading to the cause of the derailment and the subsequent explosion revealed that a hand brake was set improperly by railroad personnel. An incident involving a fire on the engine supplying power to the air brake system holding the train in place was shut down. The hand brake was set improperly by rail officials and the train ran away from its designated parking spot. An unfortunate flaw in the rail line in the town center caused the tank cars to derail.

The disaster resulted in swift action from both the US and Canadian governments. The US issued Emergency order 28 in Federal register notice, Vol. 78, No. 152 on Wednesday, August 7, 2013 mandating, among other things, that all trains transporting hazardous materials be attended by qualified rail personnel at all times. Transport Canada later responded with recommendations. Below is a table of US Accidents involving crude oil rail trains….

Accidents

Proposed Rule Responses in the table below shown in Federal Register,Vol. 79, No. 148 show us the initial responses from a varied range of stakeholders.

Table 14

Discussion

Demand for Crude Oil production in North America, particularly the Bakken Formation play, has created a demand for rail shipment in the absence of other modes of transport of crude oil to market. The Keystone Pipeline, as proposed, is primarily intended for Kearl Oil Sands Project production in Canada. It has been estimated that the Keystone line can transport a small portion of Bakken Crude (100,000 Barrels per day)leaving rail as the primary mode for shipping the remaining Bakken production, estimated at 900,000 barrels per day.

There are additional pros and cons to consider when comparing Rail shipments of crude to Pipeline transmission. For instance, Rail has been calculated as more destructive to human habitat than pipelines yet cheaper to clean up when accidents occur as compared to pipelines. Conversely, pipelines generally have less impact on the human environment in terms of lives lost than do rail incidents. However, pipeline spills generally cost more to clean up than do impacts form rail accidents. An article in Forbes notes “The Quebec train wreck last year killed 47 people and spilled 1.5 million gallons of crude onto land (Bloomberg.com). The Enbridge pipeline rupture in 2010 spilled over a million gallons of similar crude into the Kalamazoo River but did not kill anyone (Wikipedia).” The article goes on to make a sobering point by comparing the costs for the Quebec rail disaster at $400 million for loss of human life and $150 million for clean up to the Enbridge pipeline incident having costs eclipse $1 billion. Other factors for consideration when discussing crude oil rail safety initiatives include:

• the costs of the improvements proposed to the rail system.
• the costs imposed on the crude oil tank car owners for upgrades or replacement.
• the costs of time loss due to the perceived reduction in availability of rail time due the operational and vehicle specification changes proposed in the new rule making.
• the impact these costs have on the demand for Bakken Crude.

The decision makers in North America have the unenviable task of assessing the costs to implement Crude Oil Rail Safety measures and weighing this information against the risks of continuing to use rail in consideration of the known impacts to the environment, the damages to cities, damages to rail systems, and most of all, human life.

Factoids

• "In the U.S., 70% of crude oil and petroleum products are shipped by pipeline. 23% of oil shipments are on tankers and barges over water. Trucking only accounts for 4% of shipments, and rail for a mere 3%. In Canada, it’s even more lopsided. (97%) of natural gas and petroleum products are transported by pipelines (Canadian Energy Pipeline Association)."

• "In the U.S., 70% of crude oil and petroleum products are shipped by pipeline. 23% of oil shipments are on tankers and barges over water. Trucking only accounts for 4% of shipments, and rail for a mere 3%. In Canada, it’s even more lopsided. Almost all (97%) of natural gas and petroleum products are transported by pipelines."

• "Amid a North American energy boom and a lack of pipeline capacity, crude oil shipping on rail is suddenly increasing. The trains are getting bigger and towing more and more tanker cars. From 1975 to 2012, trains were shorter and spills were rare and small, with about half of those years having no spills above a few gallons (EarthJustice.org). Then came 2013, in which more crude oil was spilled in U.S. rail incidents than was spilled in the previous thirty-seven years."

• Price Differential – Crude oil from the Bakken sells at pricing less than other market competitors and is made possible due to shipping to market by rail. Costs of new regulation and safety protocols jeopardize Bakken oil producer’s ability to compete with more accessible markets.

• Crude Rail Insurance – “There is not currently enough available coverage in the commercial insurance market anywhere in the world to cover the worst-case scenario," says James Beardsley, global rail practice leader for Marsh & McLennan Cos.' Marsh Inc. insurance brokerage unit.

• Congressional Research Service estimates that transporting crude oil by pipeline is cheaper than rail, about $5/barrel versus $10 to $15/barrel (www.NYTimes.com). But rail is more flexible and has 140,000 miles of track in the United States compared to 57,000 miles of crude oil pipelines. Building rail terminals to handle loading and unloading is a lot cheaper, and less of a hassle, than building and permitting pipelines.

• "In 2013, about 33% of the petroleum consumed by the United States was imported from foreign countries.1 This was the lowest level since 1985."

• "In 2013, about 50% of the crude oil processed in US refineries was imported."

• "The physical characteristics of crude oils can be different. In simple terms, crude oils are classified by their density and sulfur content. Less dense ("lighter") crudes generally have a higher share of light hydrocarbons from which higher-value products such as gasoline, jet fuel, and diesel can be recovered with simple distillation. The denser ("heavier") crude oils produce a greater share of lower-valued products with simple distillation and require additional processing to produce the desired range of products. Some crude oils also have a higher sulfur content, an undesirable characteristic with respect to both processing and product quality."

Discussion Questions

Is rail the safest mode alternative for shipping crude oil?

What are the alternatives to rail?

Will changes to the crude oil rail safety regulations impact pricing at the pump?

Will policy changes prevent all future crude rail derailments?

Additional Readings

United States Department of Transportation-Pipeline and Hazardous Materials Safety Administration. (2014. Notice of Proposed Rulemaking). Hazardous Materials:Enhanced Tank Car Standards and Operational Controls for High Hazard Flammable Trains. Washington, DC: US Department of Transportation.

Dominus, S. (2013 , December 21). Regulars of the Musi-Cafe: A Ghost Train Devastates a Family and a Town. Retrieved from New York Times: http://www.nytimes.com/news/the-lives-they-lived/2013/12/21/regulars-of-the-musi-cafe/

Eaton, J. (2014, October 31). New Oil Train Safety Rules Divide Rail Industry. Retrieved from National Geographic: http://news.nationalgeographic.com/news/energy/2014/10/141031-rail-industry-safety-oil-standards/

Lavelle, M. (2013, July 8). Oil Train Tragedy in Canada Spotlights Rising Crude Transport by Rail. Retrieved from National Geographic: http://news.nationalgeographic.com/news/energy/2013/07/130708-oil-train-tragedy-in-canada/

PBS Newshour. (2014, July 23). DOT proposes tighter rules for oil trains. Retrieved from You Tube: https://www.youtube.com/watch?v=RC9-qsEZdWU

T.W. (2013, July 14). The Economist Explains: Why is so Much Oil Carried by Train? Retrieved from The Economist: http://www.economist.com/blogs/economist-explains/2013/07/economist-explains-8