In the wake of July’s rail disaster in that destroyed a significant portion of the small Canadian town of Lac-Megantic, US safety regulators this week launched an aggressive, pre-emptive round of spot inspections of rail cars transporting oil from North Dakota’s Bakken Shale.
The effort has been coordinated by the US Federal Railroad Administration, along with the Pipeline and Hazardous Materials Safety Administration, and constitutes a fairly speedy and high-profile response to the July 6 disaster during which a parked train carrying oil from the Bakken fields rolled away, crashing into nearby Lac-Megantic, causing an explosion that took the lives of 47 people, and destroyed much of the town.
Federal Railroad Administrator Joseph Szabo noted that one of the risks of transporting crude by rail lies in clear and simple labeling that would indicate the contents of each tanker-car. When speaking in an interview of the Lac-Megantic tragedy, Szabo highlighted the fact that “most grades of crude would not be that volatile,” implying that if the runaway car had been properly labeled as containing highly flammable and/or combustible liquids, perhaps greater care would have been taken to secure it.
According to the Association of American Railroads, over the second quarter of 2013 the amount of crude moved by rail in the US more than doubled on the prior-year period, to 108,605 carloads. The uptick can be attributed to higher oil production resulting from the North American “shale boom”, as well as the increasing popularity of rail in the wake of several incidents involving broken pipelines and the incredible resistance with which the Keystone XL pipeline has been met.
The AAAR is an industry group that counts the major US rail companies among its members Berkshire Hathaway ($BRK.A)-owned Santa Fe LLC, and Union Pacific Corp. (UNP) , who will both undoubtedly be affected by the inspections that have taken place at both loading and delivery destinations. The association claims that over 10 percent of US crude is currently moved by US railway.
Federal regulators had actually hatched the plan for an inspection onslaught, known on the inside as “Operation Classification” in March, after a growing number of inspectors had complained of “inconsistencies with crude oil classification.”
DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer