GRAND FORKS, N.D. – The head of BNSF Railway says federal regulators will have to find a balance in creating incentives for railroads to upgrade to newer tanks cars while ensuring there’s enough old cars available to handle the huge volumes of Bakken oil being shipped by rail.
BNSF CEO Matt Rose said Bakken shipments are extremely important to the railway, which is now responsible for transporting a majority of oil produced in North Dakota.
“We’re filling a gap in the network of transportation,” said Rose, speaking in Grand Forks to the North Dakota Petroleum Council
Rail transportation will continue to be vital for moving crude to East and West Coast markets, Rose said. But moving it safely has been more of a concern after a July explosion involving a train delivering Bakken crude to eastern Canada.
“The incident in Quebec was a very unique set of circumstances that had horrific outcomes,” Rose said Wednesday of the accident that killed 47 people. “We believe our operating practices at BNSF are different than what the operating practices were at the time of that accident. With every accident, there’s lessons to be learned.”
In that accident, brakes were not set properly on railcars, allowing them to roll downhill, derail and explode.
After the derailment, Rose said BNSF exceeded requirements of the Federal Railway Administration’s emergency rules on unattended trains and has done retraining exercises with crews about the use of hand brakes, Rose said.
The railway also has worked with North Dakota communities on hazardous materials training so they’re prepared if there is an accident with a train carrying crude oil or another hazardous material, Rose said.
Another agency is looking at the design of tank cars and the existing fleet of cars. About one-third of BNSF’s rail cars are a new design added after 2011 and the other two-thirds are older cars, Rose said.
Rose said there will need to be “debate and dialog” about how quickly railroads can upgrade their fleet while keeping oil shipments moving.
BNSF transported nearly 600,000 barrels a day of crude at the end of August, Rose said. In North Dakota, about 70 percent of oil produced in the state is transported by rail today compared to 5 percent in 2005.
To keep up with growing demand for transportation, BNSF will spend $200 million in the Bakken this year and another $400 million over the next 18 months, Rose said.
“That’s all just capacity to handle crude by rail,” Rose said. “We’re investing a lot of money because we see the volumes that are going to be before us. We want to make sure we have the capacity to handle not only the Bakken, but the existing agricultural products and business.”
Gov. Jack Dalrymple said state officials worried in the early days of the Bakken development that there wouldn’t be a way to get the oil out of the state.
“We really thought at one time that a deficiency of pipeline capacity and other kinds of transportation was really going to limit this incredible economic opportunity” Dalrymple said.
Dalrymple commended BNSF for ramping up to meet the demand, but also advocated for “at least” two more pipelines running from the Bakken oil formation to the east, one for oil and one for natural gas.
“We need to keep working hard to collect and gather and reduce the amount of flaring that’s going on,” Dalrymple said. “We’re not going to be able to get rid of volumes of gas that we’re flaring today unless we get some serious gas capacity going out by pipe. I’m optimistic that can be achieved.”
Rose said pipelines and rail will both be key for transporting oil, even if the Keystone XL Pipeline in constructed.
“Demand is far greater than just the Keystone,” Rose said.
Representatives of oil and gas companies attending the conference said they rely on rail more as pipeline capacity is full.
“Fundamentally, North Dakota’s changed the way oil moves in the United States,” said Eric Dille, government relations director for EOG Resources, which transports about one unit train out of North Dakota every other day.
Statoil US President Bill Maloney said rail has advantages for the Bakken because it can reach coastal refineries that are best able to handle the light, sweet crude, Maloney said.
“Rail has turned into a perfect solution,” Maloney said. “They have been able to keep up.”
Statoil leases more than 1,000 rail cars and transports most of its North Dakota production by rail, said Lance Langford, Bakken vice president for Statoil.
“This model has showed the industry the benefits of being able to take those barrels to the highest-price market, wherever that may be,” Langford said.
Reporter John Hageman contributed to this article.