BILLINGS, Mont. – Energy companies behind the oil boom on the Northern Plains are increasingly turning to an industrial-age workhorse – the locomotive – to move their crude to refineries across the U.S., as plans for new pipelines stall and existing lines can’t keep up with demand.
Delivering oil thousands of miles by rail from the heartland to refineries on the East, West and Gulf coasts costs more, but it can mean increased profits – up to $10 or more a barrel – because of higher oil prices on the coasts. That works out to about $700,000 a train.
The parade of mile-long trains carrying hazardous material out of North Dakota and Montana and across the country has experts and federal regulators concerned. Rail transport is less safe than pipelines, they say, and the proliferation of oil trains raises the risk of a major derailment and spill.
Since 2009, the number of train cars carrying crude hauled by major railroads has jumped from about 10,000 a year to a projected 200,000 in 2012. Much of that has been in the Northern Plains’ Bakken crude patch, but companies say oil trains are rolling or will be soon from Texas, Colorado and western Canada.
This is all occurring very rapidly, and history teaches that when those things happen, unfortunately, the next thing that is going to occur would be some sort of disaster, said Jim Hall, a transportation consultant and former chairman of the National Transportation Safety Board.
Rail companies said the industry places a priority on safety and has invested heavily in track upgrades, provided emergency training and taken other measures to guard against accidents.
Union Pacific Railroad CEO Jack Koraleski said hauling oil out of places like North Dakota will be a long-term business for railroads because trains are faster than pipelines, reliable and offer a variety of destinations.
Jeffery Elliot, a rail expert with the New York-based consulting firm Oliver Wyman, said the trend represents a tremendous break for the industry.
The railroads are looking at this as a unique opportunity, a game-changing opportunity for their business, he said.
For oil companies, the embrace of rail is a matter of expediency. Oil-loading rail terminals can be built in a matter of months, versus three to five years for pipelines to clear regulatory hurdles and be put into service, said Justin Kringstad of the North Dakota Pipeline Authority. Although more pipelines are in the works, Kringstad said moving oil by rail will continue.