Oil by Railin North America

By: Mark Klapheke S.N.131534A

Overview A vast network of rail already exists across both

America and Canada. New oil finds need ways to market. If pipelines

aren’t built in the right areas yet or if they are at capacity there needs to be another way to get it out.

Oil by rail has different financial, ecological and safety advantages and disadvantages than other methods.

Laws and safety regulations are being updated or enacted in order to properly reflect the current reality of how crude is transported across North America.

B

Rail as it Exists NowUnited States

225,000 km of rail1Canada

50,000 kilometers of rail2

A minimum of 840 fully loaded oil cars (600k bpd) just to move oil out of the Bakken in the US 3,4 69% of North Dakota’s

Bakken Oil or approximately 550k bpd is transported by rail5

C

D

A minimum of 1400 fully loaded oil cars (1 million barrels) used to transport oil in N. America daily3,4

Rail Operating Margins

Canada and America both enjoy very favorable freight rates as well as a well developed network of rail.

I

The U.S. Story in NumbersEE

F

E

The Canadian Story by Numbers

G

H

What does that tell us? Demand for transport of oil by rail has

increased dramatically in the last few years especially in the Bakken area in the US.

Rail has been able to cover shortfalls in pipeline capacity and availability very quickly.

Never in rail’s history has such a large volume of petroleum products been transported cross-country and even internationally between America and Canada as now.

What has happened to cause the boom in oil by rail?

Q

The Bottom Line

•It seems only reasonable to ship by rail, from a purely financial perspective, if pipeline is not available to use and if a profit can still be made after operating expenses are met including the additional $12-$15 per barrel.•Many of the larger oil finds and booms of the last 10 years in North America have come from non-conventional finds, which often come with higher extraction and processing costs than conventional green field and even brown field production leaving less profit per barrel and requiring a high oil price to remain profitable.•At $12 per barrel extra, North Dakota operations alone are paying a minimum of $2.4 BILLION extra to ship oil by rail a year.

It costs between $12 and $15 more to ship a barrel of oil by train as opposed

to pipelines.6

Why not more pipeline? The Keystone XL Pipeline project has been

waiting for approval in the US for several years whereas rail either already exists or is cheaper to build and maintain quickly.7

With Bakken wells averaging 12 years7 and in-situ oil sands wells in Alberta averaging 10-15 years11 it is often less economic to build pipeline that could take many years to pay off.7

“Even if all current pipeline projects are approved in Canada, national oil production will exceed pipeline capacity by one million barrels a day by 2025”7

M

Oil Cars and Safety 69% of America’s fleet and 80% of the

Canadian fleet is composed of the DOT-111A (CTC-111A in Canada) class tanker car.7

Risks and information as pointed out by the U.S.’s National Transportation Safety Board include: “housing not effective in preventing impact

damage” and is “inadequate to withstand the forces of a derailment.” 8

Puncture resistance could be improved. 8 New cars improved, old cars not (grandfathered

in). Having both on the same train negates the positive improvements on the more modern cars8

J (background photo of a DOT-111A tanker car)

Derailing and Disasters There have been 10 significant oil-by-rail

disasters in N. America since 2008 spilling around 3 million barrels of oil. The deadliest being in Lac-Megantic, Quebec in July 2013 killing 47 which involved Bakken oil.9

DOT-111 tanker cars were involved.10 Trains must pass through many population

centers, several of which are major metropolitan areas, to get to refineries. 9

Industry websites largely use statistics older than 2008 or 2009, which is before the oil-by-rail boom, when discussing oil-by-rail incidents.

K (background photo from Lac-Magantic Derailment)

On December 30, 2013, 9,500 barrels of Bakken oil spilled and exploded in Casselton, ND. 14 20 out of 106 oil tankers derailed, and 18 of

those were punctured and/or exploded traveling at 2/3 of the speed limit. 14

The investigation is ongoing and may take several months to draw a conclusion.14

DOT-111A tanker cars were involved with this derailment and subsequent spill and explosions.15

Oil-by-rail has increased 40 fold since 2008 and is projected to grow 450% more over current levels in the next 10 years.9

P

Canadian Regulation Transport Canada has only 35 inspectors

for all dangerous goods shipped by rail in Canada.7

The Auditor General of Transport Canada has stated “’Transport Canada has not designed and implemented the management practices needed to effectively monitor regulatory compliance’ when it comes to the transportation of dangerous goods as defined by the ministry.”7

More inspectors are to be hired in the future.7

O (Canadian Minister of Transport, Infrastructure and Communities, Denis Lebel)

American Regulations The National Transportation Safety Board (U.S.) has

recently stated “Rail tank cars being used to ship crude oil from North Dakota's Bakken region are an ‘unacceptable public risk,’ and even cars voluntarily upgraded by the industry may not be sufficient”12

Trains are required to slow down to approximately 55 kph while passing through population centers.13

US lawmakers are pushing for existing DOT-111A tanker cars to be retrofitted, but this is merely a “voluntary agreement” and holds no legal weight.12

N

Conclusions Oil by rail is very much an economic response

to not being able to get product to market quick enough.

Existing regulations and laws need to be updated and implemented to reflect the reality of oil by rail today.

Further rerouting of trains around population centers as well as tanker car safety and HazMat response need to be considered as oil by rail seems set to continue to boom.

Left on their own, there is little financial incentive for rail companies to upgrade their existing fleet.

L

References (1) “Freight Rail Today." US Department of Transportation Federal Railroad Administration. US Department of Transportation,

Accessed 15 February 2014 https://www.fra.dot.gov/Page/P0362 (2) “Rail Transport in Canada." Wikipedia, The Free Encyclopedia. Wikimedia Foundation Inc, Last Modified 29 January 2014.

Accessed 15 February 2014. http://en.wikipedia.org/wiki/Rail_transport_in_Canada (3 Jacques Leslie. “Shipping Crude Oil by Rail: New Front in Tar Sands War.“Yale Environment 360. Yale University, Published 5

December 2013. Accessed 15 February 2014. http://e360.yale.edu/feature/shipping_crude_oil_by_rail_new_front_in_tar_sands_wars/2717/

(4) “Moving Crude Oil by Rail.“Association of American Railroads. Association of American Railroads, Published December 2013. Accessed 15 February 2014. https://www.aar.org/keyissues/Documents/Background-Papers/Crude-oil-by-rail.pdf

(5) Gold, Russel. “Pipeline-Capacity Squeeze Reroutes Crude Oil.“ The Wall Street Journal Markets. The Wall Street Journal, Published 26 August 2013. Accessed 15 February 2014. http://online.wsj.com/news/articles/SB10001424127887323838204579003093413317418

(6) Stilwell, Victoria. “Railroads Look Past U.S. Oil-Move Costs Helping Pipelines." Bloomberg Sustainability. Bloomberg. Published 17 September 2013. Accessed 16 February 2014. http://www.bloomberg.com/news/2013-09-18/railroads-look-past-u-s-oil-costs-that-help-pipelines-freight.html

(7) Powers, Lucas. “Safety Rules Lag as Oil by Train Rises.“ CBC News Canada. CBC News, Published 9 July 2013. Accessed 16 February 2014. http://www.cbc.ca/news/canada/safety-rules-lag-as-oil-transport-by-train-rises-1.1312528

(8) Stancil, Paul L. “DOT-111 Tank Car Design.“ National Transportation Safety Board. National Transportation Safety Board, Accessed 16 February 2014. http://www.ntsb.gov/news/events/2012/cherry_valley/presentations/hazardous%20materials%20board%20presentation%20508%20completed.pdf

(9) Brown, Mathew. “Train Accidents, Explosions Stir Worries About Oil Transports Through Major Cities.“ Dallas News Business. Dallas News, Published 17 February 2014. Accessed 22 February 2014. http://www.dallasnews.com/business/energy/20140217-train-accidents-explosions-stir-worries-about-oil-transports-through-major-cities.ece?ssimg=1442581#ssStory1442579

(10) Podkul, Cezary and Schneyer, Joshua. “DOT-111 Cars ,Like Those in Lac-Magantic, Quebec Disaster, Long Seen as Flawed.“ Huff Post Green. Huffington Post. Published 9 July 2013. Accessed 22 February 2014. http://www.huffingtonpost.com/2013/07/09/dot-111-oil-tank-cars_n_3568287.html

(11) “Responsible Canadian Energy Oil Sands Progress Report.“ Suncor. Accessed 23 February 2014 . http://sustainability.suncor.com/2011/pdf/RCE_oilsands_progress.pdf

(12) Associated Press. “Rail cars used to ship oil are ‘unacceptable public risk,’ NTSB official says.“ Fox News.com. Published 27 February 2014. Accessed 1 March 2014. http://www.foxnews.com/us/2014/02/27/rail-cars-used-to-ship-oil-called-unacceptable-public-risk/

(13) Krauss, Clifford and Mouawad, Jad. “Accidents Surge as Oil Industry Takes the Train." The New York Times Energy and Environment. The New York Times, Published 25 January 2014. Accessed 1 March 2014. http://www.nytimes.com/2014/01/26/business/energy-environment/accidents-surge-as-oil-industry-takes-the-train.html?module=ArrowsNav&contentCollection=Energy%20%26%20Environment%20&action=keypress&region=FixedLeft&pgtype=article

(14) Shaffer, David and Ramstad, Evan. “NTSB: 400,000 Gallons of Crude Spilled in N.D. Train Wreck.“ Star Tribune Business. Star Tribune, Published 13 January 2014. Accessed 1 March 2014. http://www.startribune.com/business/239948631.html

(15) Lowy, Joan. “ DOT-111 Rail Tank Cars Used to Ship Oil Called ‘Unacceptable’”. Huff Post Green, Huffington Post. Published 27 February 2014. Accessed 1 March 2014. http://www.huffingtonpost.com/2014/02/27/dot-111-rail-tank-cars_n_4865960.html

Pictures, Charts, Maps (A) "Eastbound BSNF empty oil train approaches tunnel" by “Roy Luck" Licensed under a Creative Commons Attribution 2.0

Generic (CC-BY2.0). Accessed 16 February 2014. http://www.flickr.com/photos/royluck/8375991233/in/photolist-dLa9nX-fJy6Lj-dLfBsm-dLfB9m-aVUTqg-dLfBWu-dLfBzA-dLa68e-9iVW51-7Uepsw-dL9vVm-7Df8qH-auSGgj-89RGQj-86U7x1-8zmgRu-8tE444-apFDY7-8ztJ5W-9pBLJR-7EJZWX-8KjCEg-at8dou-aneSWm-7MxcEv-7MxcCZ-9Ve2Kd-fMTEEx-hU22PT-9SrzoS-avL7YH-hU22t2-fxmUKb-8zAnuk-8zDvGN-8zDvCy-8zAnzD-dNJuQ5-81MvHS-8tH57E-8noBaJ-c8LDob-c8LDjS-ciQcPj-ciPA5o-813FgR-813FfT-94Mvgp-imqhQU-avL9Aa-avL9Bk/

(B) “Rail" by “schaaflicht " Licensed under a Creative Commons Attribution 2.0 Generic (CC-BY2.0). Accessed 16 February 2014. http://www.flickr.com/photos/75484454@N00/13735733/in/photolist-2dp9Z-gDpBR-kVUSH-sS2G9-vMe3v-BPDuq-3bpxrq-4qxecS-4CqVmt-5aKH4d-5AofcX-5K6BrP-5Ro77x-6vJfkp-6VW4Vn-6VW556-6W15a5-dKxymh-eigzfa-9w4nEA-9w1mqc-bwGXxH-bwGWd6-7EQdw7-bzPisH-9mtdrk-7DkNsc-euHpfY-brkogt-872mJY-86Yb9t-86Ybpa-c6Wm3q-8Wo4B9-c6WkGL-e7xaQ1-e7xaH5-e7runz-euHLnA-euGPR7-euGmm1-euHbud-euGK83-euE1on-euHEod-gUAxUr-gyzopq-c96ZU7-dLfDG7-c96YDq-c96Ymb

(C) “5057.003" by “Sarah Owen " Licensed under a Creative Commons Attribution 2.0 Generic (CC-BY2.0). Accessed 16 February 2014. http://www.flickr.com/photos/sarowen/2061784789/in/photolist-46X8J6-49cbMB-4qxbzz-4sq6om-4NwnYR-59xiYc-5ps7Ps-5quW24-5qJfK6-5Nn6r6-5SEM6F-5SEM9T-5SK7Cj-5SK7FW-5SYv2U-61YMLV-68Kkwb-6At7mE-6BUWPD-6JSJZ3-6SMo26-77wjhg-9AoRf6-jufjut-k7hLbk-jVA1u1-jqKuX9-jrdVs9-jVyX5B-jXckGe-8UaLqh-jtwBJU-9H5j5t-8Qat8F-iQspVn-h4B24w-ayuMLr-e83QXX-ay3u62-gzo9Aj-e7KxBn-bpR6Qa-dVKYnF-e83G2n-e4zJky-e83DiV-fi7eHh-7xN3SW-dTUBsj-8WNQwy-a1A39y/

(D) “Class1rr” by “Kmusser” Licenced under a Creative Commons Attribution 2.o Generic (CC-BY2.0) Accessed 16 February 2014. http://en.wikipedia.org/wiki/File:Class1rr.png

(E) “Moving Crude Oil by Rail” by “Association of American Railroads” December 2013. Accessed 16 February 2014. https://www. aar.org/keyissues/Documents/Background-Papers/Crude-oil-by-rail.pdf (F) “Amid US Oil Boom, Railroads Are Beating Railroads at Crude Transport” BloombergBusinessweek by Mathew Phillips and

Asjylyn Loder. Accessed February 16, 2014. http://www.businessweek.com/articles/2013-06-13/amid-u-dot-s-dot-oil-boom-railroads-are-beating-pipelines-in-crude-transport

(G) “Canada Oil Production” by “Plazak” Licensed under a Creative Commons Attribution-Share Alike 3.0 Unported. Accessed February 16, 2014. http://en.wikipedia.org/wiki/File:Canada_Oil_Production.png

(H) “Canadian Fuel Oil and Crude Petroleum Moved by Rail” The Motley Fool by Robert Baillieul. Accessed February 16, 2014. http://beta.fool.com/robertbaillieul/2013/07/24/the-crude-by-rail-boom-in-6-charts/40647/

(I) “2012 Rail Trends” by Railway Association of Canada. Accessed February 17, 2014. http://www.railcan.ca/assets/images/ publications/2012_Rail_Trends/2012_RAC_TrendsE_Jan10a.pdf (J) “Oil Tanker” by “Larry Goodwin” Licensed under a Greative Commons Attribution 2.0 Generic (CC-BY2.0). Accessed 1 March

2014. https://www.flickr.com/photos/23002449@N02/6098247489/in/photolist-ahT7w6-8v8ksM-8v8jr6-7zGWQL-8krHpA-7YbYcq-9GZVnn-9wZMoM-9wZNP2-9x3NfW-9x3MPW-9wZMBD-9wZLk6-9x3NsS-9x3Lry-9wZNcT-9wZMM2-9x3MtU-9wZLbz-9wZMeK-9x3LY3-9x1juK-8Z8UK6-asdzA7-fbW9Yt-c6WkaU-7McGMF-8TpXcn-7KfLHp-82XAqU

(K) “lac_magantic_fireball” by “Public Herald” Licensed under a Creative Commons Attribution 2.0 Generic (CC-BY2.0) Accessed 1 March 2014. https://www.flickr.com/photos/29184238@N06/11168901784/in/photolist-i1Xxo9-f4EjQH-fa69kH-f62QcU-f5MEyA

(L) “Decisions” by “jev55” Licensed under a Creative Commons Attribution 2.0 Generic (CC-BY2.0). Accessed 2 March 2014 https://www.flickr.com/photos/52024976@N06/8093515962/in/photolist-dkcojE-c3f2C1-kwU1Zp-kwUruK-9uwsN4-k8tmcu-bYyHHj-k8rvDD-aa2ohh-86iZ8d-jC5yB1-8pAcoD-gy95a9-eX7mC7-ccqJ8j-ccqKWj-ccqJVm-ccqLnw-ccqKps-ccqHy3-bV4tA4-ccqGUY-bV4wr6-9s4bHg-cMaFYS-cMaGa1-cMaGjj-gjReG6-gjReS6-gjQB5j-dEHjFr-c6wUX1-iohWKp-gdepRH-gddRh7-gddH6X-gddYim-bQVMXk-gdegmr-7SG4nb-7SG4rY-gde7tg-gddwQM-gde8XZ-9g1DdS-gddAnM-9g1uKm-gddHGq-gddJFF-d98vh9-edNGQA

(M) “Unbalanced and old” by “Julia Manzerova” Licensed under a Creative Commons Attributions 2.0 Generic (CC-BY2.0). Accessed 2 March 2014. https://www.flickr.com/photos/7194536@N02/4748112382/in/photolist-8ezjoA-iK3sNq-fJovhZ-fJotzk-izXhdd-izXeDW-izXrie-izXiSW-bmLkS1-bB13yf-ba8aJR-7A82X1-f4G5sU-e6sGcz-ac1VCt-aZBdRk-9a6YqB-9dFsvQ-7JumQ4-cR8259-9dgYyX-axPSn7-brDVga-brDVCn-8yyBXa-8AjPiM-7FnqF3-9RQEzW-7FnqJh-7FnqNL-7FiwSp-bpn5Wv-7Fnr57-7Fix9H-7FixfB-7Fixva-ftbZta-aPEuAi-f1AjmB-bCnEyF-a9vseK-8Pc2cF-8Pc5DV-aSrU4p-8Pf9NN-aSrUM2-8yPHZf-8Pfd13-8PfeEQ-8PfgFo-8PbY9c

(N) “NTSB on-scene, Thomson, GA” by “National Transportation Safety Board” Licensed under a Creative Commons Attributions 2.0 Generic (CC-BY2.0). Accessed 2 March 2014. https://www.flickr.com/photos/68618467@N03/8498931936/in/photolist-dX2fnf-jfNo31-dWVA6T-edwZjv-ekiFJT-fuinAD-ekiFMc-kwwtXe-fuUAGT-hjCP1t-f66WhV-jfNpm3-ekVt2W-jfMYdr-feQD3h-ekpr9u-ekVt4q-dZGcqq-fvag5u-fPgGvr-e4PNNy-fE78We-i5oCjq-j1KSzT-i5EuCD-hjCPhR-edCDRy-kww5VK-jfNzk1-kwwtJt-kww62M-c9pmT7-kwye9J-fNTRBy-ijmkUw-ijmsQU-ijmNSB-ijmjqE-ijmRkH-ijmm4u-ijmt2q-dwDYhX-kwwtDi-ijmNXr-fN8WfQ-ijm62e-ijmvY7-ijmNZv-ih27Jy-ijmsTu-ijmtoY

(O) “Denis Lebel attends the session” by “International Transport Forum” Licensed under a Creative Commons Attributions 2.0 Generic (CC-BY2.0). Accessed 2 March 2014. https://www.flickr.com/photos/50964933@N08/7203675980/in/photolist-bYyHU1-9NF42G-dcBHzv-7UwT3j-dnSjv7-9ZpJ6c-ifTv8d-9JKP67-aYVgqz-h8dTS7-h8dZAo-h8eGGP-h8dCrt-eoEB9f-ifTcMa-ifTcJK-bXTY9S-9GvtuS-bSNCYF-aj7TBx-e2q3xF-e2vBaE-e2vBFS-e2vDHm-e2vAo1-e2q3Gi-8vvrvY-ifTG1U-ifU1wa-ifTGb3-ifTxSG-ifTGRS-e2vAz5-e2q34x-e2q1pK-e2vAPQ-e2q2QZ-e2pXJM-e2pZZH-e2pZ5r-e2vCUQ-e2q23H-e2pZJF

(P) “Fire Training 20101004 013” by “Public Information Office” Licensed under a Creative Commons Attributions 2.0 Generic (CC-BY2.0). Accessed 3 March 2014. https://www.flickr.com/photos/32370233@N05/5135690733/in/photolist-8PPKVX-8PSQD3-8PSQhY-8PSQZw-8PSPuC-8PPKLk-8PSQvJ-8PSR4o-8PPK2k-8PPKrZ-8PPJw2-8PPJJR-8PSQes-8PPKbz-8PPJUB-7Z6Duz-8WTPDx-9b29ip-aAU5yv-aAWN6W-aAWM4u-aAWMvA-aAU5Lc-aAU5PD-aAU5Xn-aAU5GV-aAWMSL-aAU5vt-aAWMzw-aAWMid-aAU6BF-aAWMMN-aAWMrL-aAU6y8-bBkff9-bQeVhZ-bBkgPm-bBkgej-8UwjuD-8UwjCc-8UzoK9

(Q) “The Canadian Keystone XL Pipeline is NOT A DONE DEAL” by “350 .org” Licensed under a Creative Commons Attributions 2.0 Generic (CC-BY2.0). Accessed 3 March 2014. https://www.flickr.com/photos/25654955@N03/6089777744/in/photolist-ah8GL1-9NsCbe-9NDgMs-jvMHVj-aU2mB2-9NFmxc-8uDZD4-9NJAiA-9NDUEY-8PPrhZ-9NJdLE-9NDy6B-9NJbtw-9NAw5D-efSKUD-bkrAgF-fRQxHo-9NFVNX-8PSwNd-awxy57-dPUcMK-9LPBnH-8yDCRW-9NGYu8-9NGKrb-hB8eFt-9NEdXe-euRd4K-8PPrkF-9NJfwE-9Nz3As-dxgWxj-9NBBMn-9NC9uz-anGdnL-9NEYMC-bU25pM-bF7kcQ-bF7kfy-9Nv8dj-ctoSdQ-9NGokq-8ALr6K-fPyR9Q-b9aXnX-fkWADk-jCvuNY-b2ZN7M-9NDZCz-bUpopr-9NAqQe

(R) “BNSF at Rock Creek Trestle” by “Mike Roque” Licensed under a Creative Commons NoDerivs 2.0 Generic (CC-ND2.0). Accessed 3 March 2014. https://www.flickr.com/photos/28737129@N07/8733372089/in/photolist-eiJPfR-dUg5QM-7JM2b2-7JM42t-7JQXF5-aRYpcV-dvoguG-7zhMEW-ijVGyb-heQiYE-fGC9Mc-heQhUf-heRptc-7DJFov-7CGkvF-7DJJCP-dLasnK-7JM4Xi-868tiF-7DNsCS-7HmAtK-7DNvK9-7K3Kmj-7HmCGX-7FszPv-7FsyF6-7Fws3N-7HqvrQ-7JYNR8-7K3HoN-7HmBhM-7EpQfD-dPeU2y-9JGxyD-7K3Lgh-7HeYv1-7HeXru-7FwqDs-7BSMzE-7ACu6B-7BNZre-7BSK4E-7BP2Ni-7ACt3c-7AGdC5-7FF1qv-7FJYwo-81xRto-9rUH6p-dPKJXp