In the rush to regulate, consumers will pay
In the wake of the Lac-Mégantic oil-by-rail disaster, when a train carrying crude oil from North Dakota’s Bakken field exploded in Quebec, some people began to characterize Bakken crude oil as “uniquely flammable,” with an implication that new rail car standards might be required to move the material. U.S. Transportation Secretary Anthony Foxx is said to have “…stressed that crude from the Bakken is uniquely volatile, more than most fuels, and the problem is the infrastructure and process in North Dakota.” Indeed, the supposed uniquely-flammable characteristics of Bakken crude was ultimately cited as a central reason for the recent Department of Transportation proposal to tighten rail-car standards in the U.S, which Canada will almost certainly have to match given the integrated nature of the North American rail system. Secretary Foxx, in fact, doubled down on the narrative, playing the “our science says” trump card: “Our rule-making is supported by sound science,” Foxx said. “Bakken crude oil is on the high end of volatility compared to other crude oil.”
There’s no question that we must carefully consider the safety of how we move oil, whether by pipeline, rail, roadway or barge. But we should make those judgments based on data, not on emotion or hunches. We also need to consider the costs that such decisions might impose on consumers of oil and derivative products and services. And a recent study of Bakken crude commissioned by the North Dakota Petroleum Council reveals that Bakken crude is…just regular crude oil that can be safely transported in existing rail cars.
The study, conducted by Turner Mason & Company sampled Bakken crude at 15 well sites across the Bakken formation, and at seven rail terminals, testing the oil for a broad range of physical characteristics. Summarizing the findings in plain language: Bakken crude is comparable to light sweet crude oil when it comes to its relative weight as compared to water, and it has very low levels of sulfur and corrosive acidic components. The vapor pressure of Bakken oil (a measure of how much outward pressure that Bakken oil would exert on a container such as a rail car) was found to be within a few pounds per square inch of other light sweet crude oils. The flash point of Bakken oil (that’s the lowest temperature at which the oil could vaporize enough to ignite in air) was found to be below 73° Fahrenheit, similar to other light sweet crudes. The initial boiling point (that’s the temperature at which bubbles form in a heated liquid) was found to be between 95° and 100° Fahrenheit, which is also in the normal range for light sweet crude oil; and Bakken crude didn’t have unusually high concentrations of very light (and particularly flammable) hydrocarbons (known as “light ends). And, contrary to suggestions that there might have been additions to Bakken crude that would make it uniquely flammable, the Turner Mason study found no evidence that Bakken crude was “spiked” with more flammable natural gas liquids prior to being shipped by rail.
Finally, the report notes that: “…Bakken crude oil meets all specifications for transport using existing DOT-111 tank cars.” This conclusion is consistent with the recent AFPM Bakken Report, which stated “Bakken crude oil does not pose risks significantly different than other crude oils or other flammable liquids authorized for rail transport. Bakken and other crude oils have been classified as flammable liquids. As noted, Bakken crude poses a lower risk than other flammable liquids authorized for transport by rail in the same specification tank cars.”
The “uniquely flammable” narrative has driven the ongoing process to develop new rail-safety regulations, and new standards have been proposed in the U.S. Retrofitting existing rail cars to meet the new standards is estimated to cost between $30,000 and $40,000 (US), and industry estimates suggest there are about 78,000 cars that need to be retrofit, at a total cost of $2.3 to $3.1 billion (US). Complying with the new regulations will increase costs of oil transport, and thus the cost of oil, gasoline, derivative products, and services provided through the use of those products for everyday consumers. It will also slow the trend of the shift to rail, at least in the short term, until retrofits can be worked through the system.
Some have suggested that the new standards might engender savings through reduced insurance rates, though this seems unlikely. In the wake of the Lac Megantic accident, the United States Pipeline and Hazardous Materials Safety Administration effectively concluded that current insurance coverage levels were not simply low, they were drastically too low to cover potential costs of an accident. If anything, there will be still higher insurance rates issued to cover the more expensive cars, further reducing the economic viability of moving large quantities of oil by rail. Adding to the complexity, there may not be sufficient resources in the rail-insurance sector to step up to the plate and offer more comprehensive coverage.
We may or may not be safer as a result of the proposed tank-car regulations, but it may be that the “uniquely flammable” narrative of Bakken crude has led us to focus on the wrong problem by tackling the material aspect of things before we’ve tackled the insurance side of the equation. Most likely, an integrated process tying both factors together would have yielded a superior outcome.
Subscribe to the Fraser Institute
Get the latest news from the Fraser Institute on the latest research studies, news and events.