HOUSTON / NEW YORK (Reuters) — BNSF
Railway Co plans to buy its own fleet of up to 5,000 new crude oil
tank cars with safety features that exceed the latest industry
standards, the company, a unit of investor Warren Buffett's
Berkshire Hathaway Inc, said on Thursday.
The unusual step by one of the largest U.S. railroads aims to
further the industry's push for safer movement of crude by rail
after several recent accidents, including one involving a BNSF train
in North Dakota in December.
The company, a major mover of crude by rail throughout the United
States, plans to seek bids from railcar makers for up to 5,000 new
tank cars with thicker walls and ends, increased protection of
safety and pressure valves, and other features that go beyond
industry standards adopted two years ago.
The news sent shares of several U.S. railcar makers higher.
BNSF's plan is atypical for a railroad, which generally owns only
the tracks and locomotives that pull trains. Railcars are usually
owned by leasing companies or firms such as refiners that sometimes
buy cars for their own fleets.
The December crash of a BNSF crude train in North Dakota involved
railcars that did not meet industry safety standards, according to
investigators. The train collided with a derailed grain train,
setting off fires that burned for more than a day. No one was hurt.
Crude-carrying tank cars built after October 2011 are based on
stronger design standards recommended by the Association of American
Railroads (AAR) trade group. Those design standards feature stronger
hulls and reinforced valves less likely to puncture or leak in a
derailment.
The U.S. Transportation Department's Pipeline and Hazardous
Materials Safety Administration is considering new rules for safer
tank cars as crude transport via rail surges in tandem with the
booming onshore oil production in the United States and Canada.
Last week, Canadian National Railway Co and Canadian Pacific Railway
Ltd said they would charge higher rates for customers that move
crude in railcars built before October 2011, which the National
Transportation Safety Board said in 2009 were unsafe.
BNSF declined to comment on possible pricing to shippers opting to
use the railroad's tank cars once they are built, saying such
information is proprietary. Other U.S. railroads also declined to
comment last week on the Canadian railroads' decision to charge
shippers more for using older tank cars.
BNSF's plan to move into tank car ownership and the Canadian
railroads' pricing decisions to push shippers to use newer railcars
all come before U.S. regulators have issued any new safety
standards.
BNSF did not identify railcar makers that it will invite to bid, but
manufacturers in the United States include Trinity Industries Inc,
American Railcar Industries Inc and Greenbrier Cos Inc.
Shares of American Railcar were up more than 15 percent in afternoon
trading, while Trinity jumped almost 10 percent and Greenbrier rose
7 percent. A Trinity official said the company would look at BNSF's
needs.
Earlier this month, before saying it would take bids for new oil
railcars, BNSF said it would spend $1.6 billion this year on
locomotive, freight car and other equipment purchases. That was part
of a $1 billion increase in its annual capital budget to $5 billion.
BNSF did not say when it expects to take delivery of the cars.
American Railcar Industries said on Thursday that its tank railcar
manufacturing unit was maxed out, though Greenbrier recently said it
had capacity for more work.
CRUDE BY RAIL GROWTH
Rapid proliferation of moving oil by train started more than three
years ago, with shipments surpassing 780,000 barrels a day in 2013 — a 71 percent jump from 2012, according to AAR.
The growth resulted from a lack of pipeline infrastructure to move
burgeoning inland output to refining markets, particularly on the
U.S. West and East coasts, where refiners were otherwise highly
dependent on more expensive imports.
Refiners with coastal plants have heavily embraced oil by train,
building offloading facilities to receive it. BNSF moves more crude
from North Dakota's Bakken shale than its peers.
However, crude via rail has come under intense scrutiny from
regulators after multiple crashes, particularly those that involved
pre-October 2011 older railcars without reinforcements.
AAR in November issued stronger recommendations, including the
addition of reclosing high-pressure relief valves, metal jackets and
full-height head shields.
The Railway Supply Institute, a lobbying group that represents tank
car manufacturers, last week proposed requirements that are
essentially the same as AAR's.
The worst oil-by-rail accident happened last July when a runaway
Montreal Maine & Atlantic Railway train carrying Bakken crude
crashed in a small Quebec town, causing explosions and fires that
killed 47 people and obliterated half of the main downtown strip.
Other accidents that did not cause deaths followed.
LIGHT ENDS, REFINERS BUYING CARS
In addition to considering stricter standards for tank cars, U.S.
regulators are studying the volatility of lighter crude like that
produced in the Bakken that moves via rail.
Such light crudes are considered by experts to be more dangerous
than Canadian heavy crude because they contain more light ends — such as propane and butane — that can catch fire and explode amid
sparks that fly in a crash.
In January, U.S. Secretary of Transportation Anthony Foxx held a
meeting with railroads and shippers that resulted in commitments to
consider and address railcar safety issues, train speeds and rail
inspections; participants were given 30 days to offer responses.
Some refiners aren't waiting to switch to newer railcars.
Phillips 66's crude tank car fleet consists entirely of post-October
2011 cars, and some others are phasing out older DOT-111s. PBF
Energy last week said it will rely on entirely newer railcars by
April 1 — much faster than previous estimates of the end of 2014.
Irving Oil, the destination for the crude on the train that crashed
in Quebec last year, said on Monday it would replace all pre-October
2011 railcars in its fleet with the newer design by the end of
April.
Tesoro Corp is replacing the last older cars in its fleet by
mid-summer, and Valero Energy Corp, the largest U.S. refiner, has
ordered more than 5,300 newer cars.
(Additional reporting by Joshua Schneyer
in New York; editing by Terry Wade, Lisa Von Ahn and Leslie Adler)
The unusual step by one of the largest U.S. railroads aims to
further the industry's push for safer movement of crude by rail
after several recent accidents, including one involving a BNSF train
in North Dakota in December.
