Don't derail crude-by-rail shipments of shale boom

Oil rail by Shutterstock

Article Highlights

  • Mre than 71 million barrels of crude oil were shipped by rail in just the last quarter of 2013

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  • A single dedicated large-unit train can load, carry, and unload 85,000 barrels of crude from ND to Gulf Coast in 24 hours

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  • More than 10% of the nation's total domestic oil production is shipped by rail, up from only 3.6% in 2012

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Spurred by rapid growth in crude oil shipments in the last few years, America's freight railroads are gaining a new lease on life.

Small amounts of domestic crude have always been transported by rail, but since the recent shale oil boom, the increase in shipments has been enormous. Last year, about 400,000 carloads of crude oil traveled by rail, up from only 9,500 carloads in 2008, according to the Association of American Railroads.

At about 714 barrels of crude oil per railcar, that's more than 782,000 barrels of America's crude oil transported every day last year by rail.

To grasp the revolutionary change in the logistics of crude-oil transit, consider that more than 71 million barrels of crude oil were shipped by rail in just the last quarter of 2013. That's 52% more oil than trains hauled during all of 2011, and more than 10 times the volume of oil shipped in 2008.

Oil companies are increasingly leasing trains to bring the crude from remote areas where it's being produced to the markets where it's needed. But several derailments involving oil-tank cars in the United States and Canada over the past year have raised questions about whether rail shipments of oil are safe.

Don't Derail Oil By Rail

Considering the thousands of oil shipments by rail, the accident rate is vanishingly small. Nonetheless, there are calls in Congress for stringent government safety standards on new oil tank cars and new requirements that the tens of thousands of older tank cars now in service either be retrofitted or phased out.

A more measured, less politically strident response would achieve better results. The question isn't whether to allow continued rail shipment of crude oil with existing tank cars, but how to do it more safely.

There are important advantages to shipping crude by rail, and they illustrate why we are not going to take crude oil off the rail system anytime soon.

Don't believe all the hype you hear about freight railroads. First, they are remarkably efficient. A single dedicated large-unit train typically carries 85,000 barrels of crude from the Bakken oil fields in North Dakota to terminals or refineries on the Gulf Coast, or locations on either coast, and can be loaded or unloaded in 24 hours.

Second, rail transport is significantly cheaper than truck and more flexible than pipelines to move crude long distances. Currently more than 10% of the nation's total domestic oil production is shipped by rail, up from only 3.6% in 2012.

Nationwide Flexibility

Unlike pipelines, rail shipments can be quickly diverted to different locations in response to market needs. Today refiners can access nearly any crude oil produced in the United States by rail, regardless of its location.

What's more, rail facilities can almost always be built or expanded more quickly than other methods of shipping oil. In 2012 alone, U.S. railroads invested a record $25.5 billion to upgrade and maintain our world-class freight rail infrastructure. And billions more were spent last year to pay for improvements to America's rail network.

Yet even as railroads have invested billions to maintain, improve and expand the country's rail system, they face mandates by the Obama administration that might hamper safety instead of bringing about improvements.

The railroad industry has learned useful lessons from the recent accidents, keeping in mind that any change in the nation's energy situation poses safety challenges that must be faced, resolved and overcome.

Replacing and resurfacing tracks, combined with safer, improved oil tank cars and locomotives, is a good way to make transporting crude by rail as safe as possible. Railroad companies are investing heavily in both.

There also needs to be a renewed focus on inspections and some consideration to slowing down trains carrying oil or rerouting them from heavily populated areas and other sensitive areas.

These approaches would effectively enhance the safety of crude oil shipments, without heavy-handed regulation that can become an impediment to improvement and that would damage the very rail system that's being revitalized by the private sector.

The Great American Energy Boom is the most important economic event in at least a generation, and America's rail system is playing an increasingly large role in that boom. A sensible approach would be to enact reforms that don't strangle or impede the rail sector that is supporting the fastest-growing sector of the economy — oil and gas development.

— Perry is a professor of economics at the Flint campus of the University of Michigan and a resident scholar at the American Enterprise Institute.

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