A lack of pipeline infrastructure in Northern Plains states is unlikely to slow oil production, analysis finds. The sector could be constrained, however, amid national and international concerns about the safety of transporting oil by rail.
Analysis last week from Wood Mackenzie finds more than 70 percent of the crude oil produced from the Williston Basin is leaving the region by rail. Production from the region is accelerating at a rate that's straining existing pipeline capacity, forcing energy companies to rely on rail as a transit alternative.
Wood Mackenzie said rail capacity has now outpaced pipelines for regional transit, though that wouldn't constrain development from the basin.
In January, the Pipeline and Hazardous Materials Safety Administration issued a safety alert, saying a series of derailments and subsequent fires indicate the type of crude oil coming from the region may be more flammable than other grades of crude oil.
Now, a U.N. panel for hazardous materials said it was responding to a request from U.S. and Canadian authorities to examine the rules for shipping by rail oil produced from the Bakken and Three Forks regions in North Dakota, two of the most prolific fields in the Williston Basin.
The U.N. panel said unprocessed crude oil from the region presents "unique hazards" for the transit sector. Current rules call for tests to determine the flash point for hazardous materials, though the panel said pressure inside railcars may be an overlooked danger.
Canadian Transport Minister Lisa Raitt said last week her government could address some of the safety concerns involving oil transit by rail more quickly than the United States. DOT-111 railcars built before October 2011, the type involved in deadly July rail disaster in Lac-Megantic, Quebec, are considered more prone to rupture and Raitt said the onus was on regulators to address safety concerns given the North American oil boom.
"We have the ability to move more quickly in Canada by virtue of our system, and we don't have a prescribed method of rule-making that they do in the United States," she said.
Across the border, U.S. Sen. John Hoeven, R-N.D., a member of the Senate Appropriations Committee, called for more federal funding for rail inspections.
"In particular, there is an increased need for improved rail inspections as one part of a comprehensive plan to improve rail safety for our communities," he said.
The Association of American Railroads said 15,476 railcars carried crude oil on the U.S. network for the week ending March 29. That's about 10.8 million barrels of petroleum and petroleum products, an 8.6 percent increase year-on-year.
Given the legislative hurdles in approving new pipeline infrastructure like Keystone XL, rail will continue to have a strong presence in the energy sector. Scrutiny, however, could evolve as an inhibitor as the North American oil boom continues.
By Daniel J. Graeber of Oilprice.com