Oil rail safety transport improvements will be costly

Proposed federal regulations on oil rail transportation will be costly to implement. Responding to concerns about the increase of oil rail transport and several high profile accidents, the US Department of Transportation (“DOT”) has proposed new rules to strengthen the safety standards for the rail transport of crude oil and ethanol. These improvements include new tank car standards, oil spill response plans and requirements for securing unattended rail cars.

Over a 20-year period, the Pipeline and Hazardous Materials Safety Administration (“PHMSA”) estimates that it will cost billions of dollars for stakeholders to enact the improvements necessary to comply with the proposed regulations. Though rail carriers and rail car manufacturers and owners likely will shoulder most of the costs, oil and gas companies will experience rising costs in higher purchase prices, lease rates and additional fees as the rail industry seeks to offset its higher operating costs. Further, the proposed regulations include requirements for lower speed limits and rail routing risk analyses, which could lead to transportation delays and longer delivery routes.

Currently, the proposed rules do not require oil and gas producers to “stabilize,” or remove natural gas liquids, the crude oil from the Bakken Shale before shipping it by rail. However, because the DOT has concluded that Bakken crude oil has high volatility, analysts predict that a stabilization requirement may be forthcoming. Stabilizing crude oil prior to rail transport will significantly costs for oil and gas producers.

Read more about new federal oil rail safety regulations.