It's been just over a year since a freight train carrying crude oil from the Bakken shale fields in North Dakota derailed and exploded in a Quebec town near the U.S.-Canadian border, killing 47 people.
That accident, along with several others in its wake, drew attention to the enormous increase in shale oil now being transported from North Dakota and Canada by rail –- and the vulnerabilities of that form of transport.
“More crude oil is being shipped by rail than ever before, with much of it being transported out of North Dakota’s Bakken Shale Formation,” Department of Transportation Secretary Anthony Fox pointed out in a press conference last month. “In 2008, producers shipped 9,500 rail-carloads of oil in the U.S.; by just last year, that number skyrocketed to 415,000 rail-carloads -- a jump of more than 4,300 percent.”
At that same press conference, Fox announced a rule-making proposal to improve the safe transportation of large quantities of flammable materials by rail –- crude oil and ethanol in particular.
The increase in oil being transported by rail, as well as the new safety measures, might also be a windfall for companies in some related fields.
Freight Car Designers And Refitters
The proposed new safety rules for oil freight cars means a potential bonanza for firms like The Greenbrier Companies (NYSE: GBX). The Oregon-based group is a leading manufacturer and marketer of railroad freight car equipment in both North America and Europe.
Along with retro-fitting existing oil rail cars, Greenbrier is also designing a new genreration “Tank Car of the Future,” with a thicker tank and bigger welds to ensure greater safety.
The new design, according to the Rigzone oil and gas industry web site, is “intended to meet anticipated new industry and government standards for tank cars transporting certain hazardous material.”
The Wall Street Journal reports that most, big North American railroads usually carry about $1.5 billion in liability insurance, but notes that accidents like last year's deadly derailment and explosion in Lac-Mégantic, Quebec, can end up costing billions of dollars more in cost, especially if that accident happens in a populated area.
"Even if it happens outside of town, the massive damage to property and the environment — you're stymied when you have these kind of crude oil fires burning hot and big for days," Karen Darch, president of Barrington, Illinois, told the newspaper.
This could lead to an increase in the need for insurance.
“With experts predicting that oil spill derailments may increase in frequency over the next decade, the insurance industry must be prepared to address this new coverage threat,” says the law industry tracker website Law360 earlier this year, “including the coverage issues and potential exposure which may arise from these disasters."
Emergency Services And Safety Training
Earlier this year, Minnesota's state legislature passed an oil transport law. The measure, reportedly worth more than $6 million, took fees generated in part from oil and railroad companies and put that funding toward tanker and pipeline disaster training, as well as more state transportation safety inspectors.
As former National Transportation Safety Board Chairwoman Deborah Hersman pointed out in a letter written this past January to the head of the Federal Railroad Administration, there is no mandate for the railroads to come up with comprehensive disaster response plans for oil train derailments
This means the rail carriers “have effectively placed the burden of remediating the environmental consequences of an accident on local communities along their routes,” the letter said.
According to the Association of American Railroads, the industry is providing $5 million to develop and fund specialized training for first responders handling a crude-by-rail accident, as well as developing “an inventory of emergency response resources and equipment for responding to the release of large amounts of crude oil along routes over which trains with 20 or more cars of crude oil operate.”
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