Kemp: Million Barrels of Oil per day Riding U.S. Rails

More than 1 million barrels of crude oil move by train across the United States every day, according to data published for the first time by the government on Tuesday.

The volume of crude shipped by rail has increased more than 50-fold in five years, from just 630,000 barrels in January 2010 to 33.7 million barrels in January 2015, the Energy Information Administration (EIA) revealed in its first monthly report on movements of oil by rail.

Until now, information on oil shipments has been incomplete, partly confidential and scattered across a number of sources. The Association of American Railroads, individual railroad companies, and the federal government's Surface Transportation Board, which regulates freight rates, have all published limited data on shipments.

The EIA has now brought together the confidential data from the U.S. Surface Transportation Board and Canada's National Energy Board as well as its own information on production and stocks in each part of the United States, to produce the first comprehensive picture of crude-by-rail movements.

The data underscore how rapidly the modern oil-by-rail business has grown. Shipments rose from almost zero in 2008 to hit 1 million barrels per day (bpd) for the first time in the current boom in April 2014.

Rail shipments are running at the highest level since the Second World War, when oil was shifted from tankers to railcars to avoid being sunk by submarines ("Fightin' Oil", 1943).

Railroads have become an essential part of the American energy revolution. Without the massive unit trains hauling 100 tank cars or more loaded with crude from the shale fields to refineries, U.S. crude production could not have grown so quickly over the last five years.

According to the EIA, railroads moved 10 percent of all U.S. oil production in January 2015, and 40 percent of production from states in the Midwest such as North Dakota, Colorado and Wyoming.

The main consumers were refineries in Pennsylvania, New Jersey and Delaware, which accounted for almost half of the oil shipped by rail at the start of this year.

Crude-by-rail has become essential to East Coast refiners. Railroads delivered almost half the crude processed by East Coast refineries at the start of 2015, according to an analysis of EIA data.

Smaller quantities of oil were delivered to refineries in California and on the Gulf Coast in Texas and Louisiana, where crude-by-rail is more marginal to refinery operations (http://link.reuters.com/fav44w).

The surge in crude-by-rail explains why both the railroads and oil shippers were slow to appreciate the risks involved in carrying large volumes of oil in unit trains. Because so little oil was transported by rail prior to 2011 or even 2012, there was not much statistical information on the risks involved in carrying oil in unit trains.

The risk of derailments and train fires was always present but hidden and not appreciated because there were so few crude carrying trains.

The danger has only become apparent when the size of the business was scaled up by more than an order of magnitude. It is a familiar problem with new technologies or technologies which undergo rapid growth ("Normal Accidents: Living with High-Risk Technologies" 1999).

But crude-by-rail has become so central to the U.S. oil business that the industry has struggled to formulate an appropriate safety response -- even as the risks have become increasingly evident following a string of devastating train fires.

The industry is torn between fear of a catastrophic train fire in a major urban area that could cause mass casualties and cost billions of dollars in compensation and clean up, and the need to fight or delay tougher safety standards which could restrict the availability of tank cars and disrupt the increasingly vital flow of oil by tank car.

Negotiations between the railroads, oil producers, refiners and the U.S. government about new crude-by-rail regulations and tank car safety standards boil down to the question of how to balance the safety imperative of withdrawing older and less secure tank cars as soon as possible against the commercial imperative of keeping them in service for longer to maintain tank car availability and keep the oil flowing.

By John Kemp