Railroads Filling Void as Oil Pipeline Falls Short

In December, a new terminal in the Port of Beaumont welcomed its first customer: a train carrying 43,000 barrels of crude oil from Colorado. Workers at the terminal, the Jefferson Transload Railport, transferred the crude to a barge, which traveled down the Neches River to a nearby refinery.

As shale fields scattered across the Midwest and West Texas produce millions of barrels of crude oil, energy companies are finding the national pipeline network insufficient to transport their output. Railroads are increasingly picking up the slack, and Jefferson Energy Companies, based in The Woodlands, is one of several companies investing millions of dollars to help transport crude by rail, a business that was nearly nonexistent just five years ago.

“We never thought we competed with pipeline until four years ago when we moved our first unit train of crude by rail,” Dean Wise, a vice president for BNSF Railway, based in Fort Worth, said at a rail conference in January. “Now BNSF is moving eight trains a day.” 

In Texas, the crude-by-rail boom has led to construction of  facilities to help deliver the product to Gulf Coast refineries. It has also drawn concerns about the safety of moving such volatile materials throughout the state, in light of a spate of recent accidents.

“These things are firebombs on rail,” said Tom "Smitty" Smith, the Texas director of Public Citizen, a consumer advocacy group. “They cross in the middle of urban areas and literally bisect small towns all over Texas, bringing the danger to our most populated areas.”

While most crude oil is still transported by pipelines, rail transport is gaining ground. According to the Association of American Railroads, the U.S. rail system transported 407,642 carloads of crude oil in 2013, up from 9,500 carloads in 2008.

The Port of Beaumont and Jefferson Energy developed the Jefferson Transload Railport as a public-private partnership, a Jefferson Energy spokesman, Mark Viator, said. Funding for the project included $47 million borrowed through a federal bond program for areas affected by Hurricane Ike in 2008. While the terminal is currently receiving crude oil trains that have 60 to 80 cars, it is equipped to handle trains of up to 120 cars and to drain every car simultaneously, Viator said.

“Everything that has been received so far in the Beaumont terminal has been from Colorado,” John Roby, a spokesman for the Port of Beaumont, said. “It’s mainly because rail is serving those areas that are not now served by pipelines.”

Transporting crude oil by pipeline is generally cheaper than by rail, at a cost of about $5 a barrel compared with $10 to $15 a barrel, according to a February report by the Congressional Research Service. Yet rail offers its own advantages, including speed. Transporting oil from North Dakota’s Bakken shale fields to the Gulf Coast can take five to seven days by rail, compared with about 40 days by pipeline.

There are nearly 140,000 miles of railroad in the United States, while the crude oil pipeline system is just 57,000 miles long, according to federal data. For a company with crude to transport, railroads can be the simpler solution if a link to a pipeline is not already in place, said Sandy Fielden, the director of energy analytics for RBN Energy, a consulting firm.

“If you’re going to build a 1,000-mile pipeline, you have to have some serious investment,” Fielden said. “But just to build a rail terminal in West Texas, depending on how big it is, is not such a huge investment.”

The safety of crude-by-rail operations has drawn increased scrutiny since July, when a train carrying crude oil in Lac-Mégantic, Quebec, derailed and exploded, killing 47.

The incident was the most striking example among recent oil spills originating from trains, which have become increasingly common. More than 99 percent of hazardous material shipments reach their destinations without spills, according to the Association of American Railroads. Yet more crude oil was spilled in American rail incidents in 2013 than in the previous  four decades, according to a McClatchy Newspapers analysis of federal data. The data for Texas shows 62 crude oil spills from trains over the past decade. Forty two, or 68 percent, have occurred since 2012.

U.S. Sen. Jay Rockefeller, a West Virginia Democrat and chairman of the Senate Committee on Commerce, Science and Transportation, has expressed concerns about the safety of using trains to transport crude and recently accused the crude oil industry of dragging its feet on sharing relevant data with federal regulators.

“While the economic benefits of shipping crude by rail may be immense, the safety shortcomings can become horrific disasters and heartbreaking tragedies as we saw in Lac-Mégantic and North Dakota,” Rockefeller said in a statement.

Federal regulators and the railroad industry have agreed to some new safety measures for oil-tank cars, including plans for operators to slow the speed of those trains to 40 mph from 50 mph when traveling through 46 federally designated “high-risk urban areas.” In Texas, the Dallas-Fort Worth, Houston and San Antonio regions are included on the list.

The Department of Transportation is also looking at implementing new safety standards for tank cars carrying crude oil or other combustible materials, a move which could require companies to upgrade or replace thousands of cars.

Along with the concerns about safety, the shipment of crude by rail from the oil sands of Canada has been at the center of an environmental debate over construction of the northern portion of the proposed Keystone XL pipeline, which is intended to link Alberta to the Texas Gulf Coast. From 2011 to 2013, Canadian crude imports by rail jumped to 40 million barrels from 1.6 million barrels, according to the Congressional Research Service.

Smith of Public Citizen said he and many environmental advocates have campaigned against the Keystone XL because they oppose the importation of Canadian oil sands by any method. Yet he generally supports the use of pipelines to transport crude over rail because he believes it is a safer method.

“If you take a good look at the rail map across Texas,” he said, “you’d understand why we’re so frightened by this prospect.”

The railroad industry counters that transporting crude oil by rail is safe — and in some situations, the most viable option.

“You’re never going to eliminate the risk of moving crude by rail,” Wise said. “What you can do is reduce, reduce, reduce.”

Disclosure: BNSF is a corporate sponsor of The Texas Tribune. A complete list of Texas Tribune donors and sponsors can be viewed here.