Bloomberg News

CSX Oil-Train Derailment Seen Boosting Calls for Rail Safety (1)

May 01, 2014

A CSX Corp. (CSX:US) crude-train derailment that sparked a fire in downtown Lynchburg, Virginia, is poised to increase pressure on regulators, railroads and tank-car owners to improve oil shipment safety.

Yesterday’s incident, with video of flames and billowing smoke, provided a dramatic backdrop for New York Governor Andrew Cuomo to weigh in on U.S. officials’ review of requirements for sturdier tank cars. Not long after the crash, he sent a letter to the White House urging tougher rules for crude transport.

“This will add to the emotional story and there will be more pressure for them to move,” said Tony Hatch, a former railroad analyst who now runs ABH Consulting in New York. “This is the one thing the railroads didn’t want to have.”

The U.S. Department of Transportation already was studying changes in response to a spate of accidents, and railroads agreed in February to slow oil trains in urban areas and install sensors on tracks used to haul crude. Canada, stirred to action by a Quebec derailment that killed 47 people in July, ordered a phase-out last week of older tank cars by May 2017.

Crude-by-rail volumes are surging to handle oil extracted from U.S. shale formations with limited access to pipelines. U.S. crude production jumped 32 percent in two years to a daily average of 7.5 million barrels in 2013, the U.S. Energy Information Administration reported in December, and may surge more than another 20 percent to 9.1 million barrels by 2015.

Greater Emphasis?

“Crude by rail is going to continue to expand as North American production increases,” said Andy Lipow, president of energy consultant Lipow Oil Associates LLC in Houston. “There are safety regulations in the works due to accidents in the last year. After this one, there might be a greater emphasis in getting those regulations implemented sooner.”

Cuomo, whose state was the most populous in the U.S. east of the Mississippi River as of last year, sent the White House a letter and a New York report on crude safety.

The recommendations were aimed at helping “prevent the disasters that have occurred in other states and Canada as transit infrastructures adjust to the crude oil boom,” according to a statement from the governor’s office.

New York politicians have crossed swords with railroads before on safety issues. In 2007, then-Senator Hillary Clinton spurred the Federal Railroad Administration to conduct a safety review of CSX operations following accidents that included two New York derailments.

Rail Safety

Rail safety has assumed an even higher profile since then, along with soaring crude shipments. Railroads moved about 400,000 oil carloads in 2013, dwarfing 2005’s 6,000, according to an estimate by Logan Purk, a St. Louis-based Edward Jones & Co. analyst. Explosions underscore the risk: The downtown area of Lac-Megantic in Quebec was gutted in July, and another blast rocked the North Dakota countryside in December after a grain train derailed and smashed into one carrying crude.

No one was injured in the Lynchburg accident, and the fire was out within about three hours. About 15 tank cars came off the tracks, CSX said in a statement. The 105-car train with two locomotives was en route to Yorktown, Virginia, with a load of crude from the Bakken shale formation centered in North Dakota, the railroad said. CSX picked up the cargo in Chicago.

Train Speed

The train was traveling at 24 miles (39 kilometers) per hour when it derailed, said Keith Holloway, a National Transportation Safety Board spokesman who was in Lynchburg today with the team investigating the accident.

He said he didn’t know the speed limit for the tracks in that section of the city nor whether any of the tank cars that came off the tracks were the older models under scrutiny by regulators for safety upgrades or retirement.

The train was bound for a so-called transloading facility, where crude is transferred to barges, Chief Executive Officer Mike Ward said by telephone. Plains All American Pipeline LP (PAA:US) operates a center in Yorktown with daily capacity to unload about 140,000 barrels. Brad Leone, a spokesman, didn’t respond to e-mail and phone messages for comment.

CSX said today it removed all the non-derailed cars from the scene and is doing an assessment for environmental damage. The accident occurred near the James River, which flows through the heart of Lynchburg, about 181 miles southwest of Washington.

The accident was the first to spill crude from a CSX train, Ward said. The Jacksonville, Florida-based railroad had a low-speed incident earlier this year in Philadelphia that didn’t release any oil, Ward said.

The lack of an explosion in Lynchburg mitigates some of the safety concern, said Marvin Trimble, director of commercial development for Strobel Starostka Transfer Canada Ltd., a logistics provider for energy companies in Alberta.

“This is not anything the industry needs right now,” Trimble said. “It raises a flag but until we see the results, we don’t really know what the significance of this accident is.”

To contact the reporters on this story: Thomas Black in Dallas at tblack@bloomberg.net; Christine Harvey in New York at charvey32@bloomberg.net

To contact the editors responsible for this story: Ed Dufner at edufner@bloomberg.net; Dan Stets at dstets@bloomberg.net Molly Schuetz


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Companies Mentioned

  • CSX
    (CSX Corp)
    • $35.19 USD
    • 0.37
    • 1.04%
  • PAA
    (Plains All American Pipeline LP)
    • $56.34 USD
    • 0.21
    • 0.37%
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