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Rail shipments of oil here to stay, IHS finds

Rail an "enabler" for North American oil production gains.

By Daniel J. Graeber

CALGARY, Alberta, Dec. 12 (UPI) -- More than 10 percent of the oil transported in North American will be carried on the region's rail system at its peak, analysis from IHS Energy finds.

The Organization of Petroleum Exporting Countries finds the world needing less of its crude oil in part because of the glut in the North American market brought on by shale. The United States alone is producing around 9 million barrels of oil per day and, with the existing pipeline network lacking the capacity to handle the load, those in the industry are turning to rail as an alternate transit method.

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"Rail transport of crude oil has become an enabler of growth in North America, playing a crucial role as pipeline capacity has struggled to keep pace with the rapid rise of North American oil production since 2008," IHS Energy Director Kevin Birn said in a Thursday statement.

A new report from IHS finds the amount of crude oil carried on the North American rail system should peak by 2016 at 1.5 million barrels per day, up from the 20,000 bpd recorded just five years ago. At its peak, rail will handle more than 10 percent of the North American crude oil production.

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The increase in crude oil transportation by rail has sparked safety concerns, a scrutiny heightened in the wake of the deadly 2013 derailment in Lac-Megantic, Quebec.

Last month, around 1 dozen empty crude oil tankers derailed in Casselton, N.D., from a BNSF-operated train. About 950 barrels of oil spilled when two trains operated by BNSF collided and derailed near Casselton in late December 2013.

Bakken, the type of crude oil found in North Dakota shale deposits, was characterized by federal regulators as potentially more prone to catch fire than other blends. North Dakota regulators this week approved new rules that would require state producers to treat oil to reduce volatility before being loaded onto rail cars.

The American Petroleum Institute, for its part, published its own set of recommendations for testing and classification of crude oil for rail shipments.

Meanwhile, U.S. safety regulators are reviewing policies regarding cars designated DOT-111, some of which derailed in recent accidents and may be more vulnerable to leaks or explosions than other types of rail cars.

IHS found overall rail accidents involving hazardous materials have dropped by more than 40 percent, though accidents involving crude oil specifically have increased.

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In terms of regulations surrounding crude oil transit by rail, Birn said the impact has yet to be determined.

"There is some uncertainty as to whether some of these proposals could carry unintended consequences such as whether more traffic could result or whether enough rail cars would be available under certain policies being contemplated," he said.

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