Why the U.S. Oil Boom may go off the Rails

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By Daniel J. Graeber for OilPrice.com

Lawmakers and U.S. regulators began asking questions about the safety of transporting oil on the nation's rail system following a December derailment in North Dakota. The emerging anxiety about midstream issues may create new problems for U.S. oil.

The Pipeline and Hazardous Materials Safety Administration issued a safety alert following the late December derailment of a BNSF line carrying oil from the Bakken reserve area in North Dakota. No injuries were reported in the 106-car accident near Casselton, though the derailment sparked an explosion and fires that burned for more than 24 hours.

The PHMSA, a division of the Department of Transportation, advised shippers of the potential material risks and hazards associated with crude oil extraction and production.

"PHMSA also advises emergency responders to be alert to the risks of crude oil transportation due to the increased volume of transportation and the wide range of crude oil properties," the agency said.

The Association of American Railroads, which welcomed the PHMSA advisory, said 495 million barrels of petroleum and petroleum products were delivered on the U.S. rail system last year, a 31.1 percent increase from the previous year.

The North Dakota Industrial Commission said more than 90 percent of the state's oil production comes from the Bakken and Three Forks areas. October's production level of 941,637 barrels of oil per day was a new all-time record, though there isn't enough pipeline capacity to keep up.

Robert Harms, chairman of Republican party in North Dakota, said oil production in the state may be too much too soon and U.S. Sen. Charles Schumer, D-N.Y., said he wanted federal authorities to either overhaul, or eliminate, older rail cars involved in the BNSF derailment.

So-called DOT-111 rails cars were involved in a 2013 accident in Lac-Megantic, Quebec, which left more than 45 people dead after a train carrying Bakken oil slipped its tracks and exploded.

Casselton Mayor Ed McConnell said his town escaped a major catastrophe, though it's not the first time the area had a brush with rail disaster – it's the fourth in less than a decade. Nine years ago, a train carrying coal slipped its rail and McConnell said it's time to get serious about rail safety.

North Dakota Gov. Jack Dalrymple met with Matt Rose, CEO and Chairman of BNSF Railway, to discuss rail safety issues in the wake of the Dec. 30 derailment.

"We’re going to pursue this until we’re satisfied that the appropriate measures are in place for maximum public safety," the governor said.

States like North Dakota are helping the United States oust Saudi Arabia from the top of the international oil heap. Production gains, however, have been followed by a series of major pipeline spills and derailments. With fracking concerns shifting to the background, it's midstream issues that could push the U.S. oil trajectory off the rails.

Read the original article at OilPrice.com.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Commodities , Technology , US Markets

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