WASHINGTON Crude oil produced in North Dakota may be more flammable and prone to explosions than earlier thought, U.S. officials said on Thursday as they examine whether gas trapped in crude-by-rail shipments could explain a spate of fiery accidents.
In the latest crash involving fuel produced in an oil patch known as the Bakken, several tank cars exploded after a collision on a desolate stretch of North Dakota track on Monday.
In that case, as with several other accidents in recent months, tank cars exploded with a force that surprised investigators.
The incidents "indicate that the type of crude being transported from the Bakken region may be more flammable than traditional heavy crude oil," the U.S. Pipeline and Hazardous Materials Safety Administration (PHMSA) said on Thursday.
New drilling methods like hydraulic fracturing, or fracking, have unlocked vast oil deposits and producers eager to maximize profits often try to supply refiners off the national pipeline grid who are willing to pay more for the fuel.
That market pull is one reason over two-thirds of North Dakota's oil production is currently shipped by rail.
Northern Oil & Gas Inc, Oasis Petroleum Inc and Continental Resources are among the Bakken producers whose shares dipped on Thursday.
Regulators are working to tighten train transport safety and if those rules are costly to enforce, analysts say, it could cut into crude-by-rail profits.
"Depending on what it costs to fix this problem, you could be eating into the dynamics that have put so much crude oil on the tracks in the first place," said David Vernon, a transportation analyst with research firm Sanford C. Bernstein & Co.
CORROSIVE, SULFUROUS OR EXPLOSIVE?
Crude-by-rail safety has been closely scrutinized since July when a runaway oil train carrying light crude from the Bakken derailed and exploded in the center of the Quebec town of Lac-Megantic, killing 47 people.
The devastation caused by that accident and fireballs that have followed other derailments prompted regulators to scrutinize the contents of tank cars.
PHMSA officials have examined whether Bakken crude is unduly corrosive, more sulfurous or loaded with explosive gas as it moves on the tracks from oil fields to distant refineries.
On Thursday, Bakken producers were warned to "sufficiently degasify" crude oil being loaded onto tank cars, and officials said they will examine the "dissolved gas content" of crude oil shipments.
Packing gas onto tank cars meant to carry liquid fuels can push the pressure to dangerous levels and provoke explosions, industry officials have said.
"Large amounts of vapor pressure can split the tank, sink the roof and emit (a) flammable gas cloud," the Canadian Crude Quality Technical Association, an industry-sponsored research group, concluded in March.
Bakken producers have recently reported a large amount of corrosion in tank cars and "high vapor pressure causing bubbling crude," the trade group said.
Tesoro Logistics LP reported in March that pressure on Bakken crude shipments was likely to exceed federal safety standards.
U.S. railroads want tank car manufactures to upgrade the national fleet with new safety standards that could cost the industry more than $3 billion, according to a Reuters estimate.
If regulators opt for such standards and give the tank car industry a short time to comply, the hit to the Bakken energy sector could be severe at a time when crude-by-rail traffic is climbing.
Trains carried nearly 700,000 barrels a day of North Dakota oil to market in October, a 67 percent jump from a year earlier, according to the state pipeline authority.
Most of those deliveries are in 100-car 'unit trains' that can move huge crude volumes in unbroken shipments but that can intensify dangerous spills and derailments.
If regulators deem unit trains dangerous - as some in the rail industry have conceded - then oil producers might also lose an efficiency that has made rail shipments an attractive alternative to pipelines.
(Reporting by Patrick Rucker; editing by Ros Krasny, Leslie Adler and Phil Berlowitz)