The deadly train derailment and explosion that claimed at least 20 lives this weekend in a small Canadian town has raised questions about the safety of shipping crude oil by rail (EnergyWire, July 9).
But while regulators look into concerns about the old, puncture-prone tank cars involved in the disaster in Lac-Mégantic, North American manufacturers are continuing to tackle record orders for crude tank cars. Experts say the oil industry's interest in such specialized cars, which come in a variety of designs but typically hold 700 barrels of oil apiece, is unlikely to wane in the wake of the recent tragedy.
If anything, fallout from the Quebec crash could be a boon for rail car manufacturers if new regulations force the early retirement of older, less-secure models, said Anthony Hatch, principal of ABH Consulting, a New York-based freight transportation research firm.
"Conceivably, demand for different types of cars may even accelerate if [investigators] find some issue where the car was partially at fault," Hatch said in an interview yesterday. "That would actually be good for the car-building industry, because you'd have to replace a lot of cars."
The existing backlog of crude tank cars is big enough to keep many leading manufacturers busy through 2015.
Manufacturing giant Trinity Industries Inc. recently reported a record backlog of 41,215 rail units worth $5.1 billion -- more than half of the industry total. The company has repurposed several wind tower facilities to meet customers' appetite for oil tank cars (EnergyWire, May 2).
American Railcar Industries Inc., another major car builder, recorded first-quarter manufacturing revenues of $228.4 million, an 8 percent jump over the same period in the previous year. The company said the "primary reason" for the growth was demand for its tank cars.
ARI's backlog sits at 6,400 rail cars as of March 31, while competitor Greenbrier Cos. Inc. has 14,200 units slated for construction as of May 31, worth $1.57 billion.
A representative from Greenbrier declined to speak about the company's tank car business and deferred comment on the Quebec incident to the Association of American Railroads, an industry trade group. Spokespeople from ARI and Trinity also refused to comment on the issue.
In a July 1 statement, Greenbrier President and CEO William Furman touted "robust order activity" in the company's rail sector, noting that "approximately 37 percent of the total 7,600 units ordered since March 1, 2013, are for tank cars in North America."
Analysts at KeyBanc Capital Markets Inc. reported in a June 20 research note that as much as 50 to 75 percent of the tank car backlog could be intended for crude service.
"We think the speed and flexibility of rail transportation has captured much of the incremental shale oil production volume at the expense of pipelines in recent years, and that those market share gains should be persistent," the note said.
The recent tragedy in Lac-Mégantic, Quebec, has highlighted worries about the safety and reliability of tank cars -- particularly the old, popular DOT-111 model involved in the crash early Saturday morning (EnergyWire, July 10).
Canadian and U.S. regulators have long cited flaws in the DOT-111's design that leave it vulnerable to punctures and leaks. But despite repeated recommendations from Canada's Transportation Safety Board and its U.S. counterpart the National Transportation Safety Board, there have been few efforts to phase out or retrofit older cars.
"Things seem to move very slowly" in the rail industry, said Rob Johnston, a manager in the rail and pipeline investigations division of Canada's TSB.
Tank cars are only required to be inspected once every 10 years, and many cars get "grandfathered in," he said. There are no North American regulations limiting the life span of the actual tank on such cars, and models built before 1990 have particularly fragile steel shells, TSB reports indicate.
Johnston noted that the official inquiry into the cause of the Lac-Mégantic crash is ongoing and said it's too early to tell if the rail cars played a major role.
"There are tank cars that do have more protection and are built to a higher standard, but whether they would have survived this or not, it's hard to say without knowing the forces involved," he said.
The AAR points out that the latest DOT-111 tank cars comply with more stringent standards in place since 2011. The group also notes that accidents involving hazardous materials have fallen 91 percent since 1980.
AAR spokeswoman Holly Arthur declined to speculate on the Quebec crash's regulatory implications, but outside experts say tank cars may not face much more scrutiny.
"I think there may be some changes to the car, but I don't see they'll be very dramatic," said Nancy Kinner, a professor of civil and environmental engineering at the University of New Hampshire and an expert on oil spills. "If you look at many of these [crude-by-rail] spills, where cars are tumbling off of a train track in a derailment, usually when you puncture a car, you don't have gobs of oil coming out all at once. [Lac-Mégantic] is a unique case."
Preliminary reports about the incident show that the brakes on the train, operated by Chicago-based freight carrier Montreal, Maine & Atlantic Railway, disengaged while it was parked on an incline. The unmanned 73-car train barreled into the 6,000-person town of Lac-Mégantic, setting the stage for the derailment and explosion that left around 50 people feared dead, according to reports this morning.
Bob Bea, a professor of civil and environmental engineering at UC Berkeley, called the derailment a classic case of "risk creep" in which risks gradually build up without a corresponding increase in safeguards.
"Rail shipments of hydrocarbons have been increasing and are forecast to increase even more in the near future," said Bea, a leading researcher at UC Berkeley's Center for Catastrophic Risk Management. "However, the 'system' that is responsible for the rail shipments of the hazardous hydrocarbons has not changed substantially to address the increased risks."
The U.S. Energy Information Administration, citing AAR figures, noted yesterday that the amount of crude oil and refined petroleum products shipped via rail totaled 1.37 million barrels per day in the first half of 2013, up 48 percent from the previous year.
In its note, EIA described evidence of a slowdown in crude-by-rail growth, which shot up at the onset of the shale revolution five years ago in areas underserved by pipelines such as North Dakota.
EIA attributed the drop-off to the shrinking price gap between crude from North Dakota's Bakken Shale play and international benchmark Brent oil. East Coast refiners aren't eager to pay for railed-in crude if barged Brent can be bought for similar prices.
But in a telling addition, EIA said flattened crude-by-rail growth could also be due to the 60,000-unit backlog of rail cars that will take years to clear up.
In KeyBanc's rail manufacturing industry update last month, lead researchers Steve Barger and Tejas Patel acknowledged the possibility that rail car demand could hit a wall but doubted such a scenario is "imminent."
"Concerns around potential overbuilding persist but are hard to quantify," the researchers noted. "No one knows how many tank cars will ultimately be needed to support petroleum transportation."
Like what you see?
We thought you might.
Start a free trial now.