Opposition, New Safety Rules To Test The Oil By Rail Model

Growing opposition to an oil by rail terminal in Washington state is threatening to shoot California gasoline prices -already the highest in the US- up the roof as local refineries will be forced to buy more foreign oil transported by cargo ships as opposed to crude from local sources.

Antagonism to refiner Tesoro Corp. (NYSE:TSO) and partner Savage Companies long-planned project, reports Reuters, is just the tip of the iceberg, as the main issues behind the rising hostilities are the risks associated to the also increasing rail crashes across the country.

"These trains explode," Paul King, deputy director for rail safety at the California Public Utilities Commission (CPUC) told KQED Science.

"If that were to happen in a town, there's no telling the damage. And of course we know what happened in little Lac-Mégantic," he added. King is referring to the town in Quebec, Canada, where a train carrying crude from North Dakota's Bakken formation derailed in July last year. The explosion killed 47 people.

Savage and Tesoro Corp. aim to handle as much as 380,000 barrels of crude oil per day, hauled by train from the Bakken shale formation in North Dakota, the largest oil-producing US state after Texas, where oil is extracted by hydraulic fracturing.

Related Article: Safety Concerns Mount As Rail Shipments Of Oil Grow

But the companies also face legal challenges. Within weeks, the Obama Administration is due to unveil a suite of reforms that will rewrite safety standards conceived long before the shale oil boom, at a time when oil was rarely moved by rail, if moved at all.

Analysts say the new safety rules could limit a practice that has supported bottom lines across different industries in the US. It may also complicate shipments of one-tenth of domestic crude to refineries.

Since May 2011, North Dakota and Texas oil production boom has increased the amount of trains in the US by more than 400%. Data from the North Dakota Pipeline Authority, however, shows that oil-by-rail shipments have been declining this year in favour of oil exports by pipelines, which have increased.

These projects, being TransCanada Corp.'s (TSX:TRP) Keystone XL pipeline the emblematic case, have also faced fierce opposition and ongoing legal challenges.

By Cecilia Jamasmie of Mining.com