(Updates with share price, rail-safety advocate comment starting in seventh paragraph.)
Jan. 2 (Bloomberg) -- Crude oil produced in North America’s booming Bakken region may be more flammable and therefore more dangerous to ship by rail than crude from other areas, a U.S. regulator said after studying the question for four months.
The Pipeline and Hazardous Materials Safety Administration announced its preliminary conclusion today, three days after a BNSF Railway Co. train carrying oil caught fire after a collision in Casselton, North Dakota.
The North Dakota accident is the fourth major North American derailment in six months by trains transporting crude. Record volumes of oil are moving by rail as production from North Dakota and Texas pushes U.S. output to the most since 1988 and pipeline capacity has failed to keep up.
The regulator “is reinforcing the requirement to properly test, characterize, classify, and where appropriate sufficiently degasify hazardous materials prior to and during transportation,” according to a safety alert posted on its website today.
The agency’s findings may expedite the rail industry’s push for stronger tank cars for moving crude and other hazardous materials. It strengthens calls for the petroleum industry to accurately label tank-car contents and test shipments to make sure they don’t contain gases from the lighter oil produced in the shale rock in North Dakota.
‘Cause for Concern’
“We believe there is sufficient cause for concern,” about whether crude shippers are properly labeling tank cars’ contents, Jeannie Shiffer, a pipeline-regulator spokeswoman, said in an e-mail.
Continental Resources Inc., the largest owner of drilling rights in the Bakken formation, fell 4.2 percent to $107.76 at 4:01 p.m. in New York trading. Earlier, the shares fell to $106.12 for the biggest intraday day decline since Nov. 7.
U.S. regulators, including the Federal Railroad Administration, began examining whether Bakken crude is more risky to move by rail following an explosion of cars carrying North Dakota crude in Lac Megantic, Quebec. About three-quarters of the oil produced in North Dakota is shipped by rail rather than pipeline.
The “implications for cost and speed of crude out of the Bakken as a result of today’s safety alert are likely to depend on the rulemaking” that follows, Kevin Book, managing director for research at ClearView Energy Partners LLC in Washington, said in an e-mail. “We expect that the North Dakota accident will bring a proposal sooner rather than later.”
The boom in hydraulic fracturing, in which water, sand and chemicals are shot underground to break apart rock and free the fuel, helped North Dakota pass Alaska in 2012 to become the second-largest onshore producer of oil among U.S. states. Output from that state’s portion of the Bakken formation was up by 250,000 barrels per day in September from a year earlier, according to the U.S. Energy Information Administration.
Some supporters of the proposed Keystone XL Canada-U.S. pipeline say rail accidents buttress their argument. Opponents of the project by TransCanada Corp. of Calgary point to pipeline spills in Alabama, Michigan and North Dakota to show that method of transporting oil carries its own hazards. In September, a Tesoro Corp. pipeline ruptured and spilled 20,000 barrels of crude in northwest North Dakota.
Led by production from underground shale, U.S. oil output grew 18 percent in the past 12 months, the fastest pace on record, boosting fuel exports and reducing reliance on imports, according to the energy information agency. The boom will make the U.S. the world’s largest producer by 2015, the International Energy Agency said last year.
The oil carried on the train that crashed in Quebec, killing 47 people, in July was improperly labeled as a less volatile liquid with a lower level of hazard, Canada’s Transportation Safety Board said in September. The crude was en route to Irving Oil’s refinery in Saint John, New Brunswick, from the Bakken region. The Bakken shale formation is in the northwestern part of North Dakota and eastern Montana.
Crudes carried in tank cars are classified as flammable liquids and then divided into so-called packing groups based on their level of hazard, with PG I being the most hazardous and PG III being the least. The Bakken oil being transported by the train that derailed in Quebec was described as PG III when it should have been PG II, the board said.
PHMSA announced that it was establishing new rules for fuel shipments in September. That agency and the rail-safety regulator are also considering a rule to require stronger tank cars. The proposal has the rail industry’s support and is being challenged by the shippers that own or lease the railcars.
The Association of American Railroads in November asked regulators to require most of the U.S. tank car fleet, numbering about 92,000 cars, to be replaced or retrofitted to make the equipment better able to withstand a crash. The Washington-based trade group’s members include BNSF, owned by Warren Buffett’s Berkshire Hathaway Inc.
“The rail industry is and is going to continue to be a player in the rush to this country’s energy independence,” Patti Reilly, a rail association spokeswoman, said in a phone interview. “We’re going to do everything we can to help this country achieve energy independence and we’re going to do it in the safest possible manner.”
The group called on regulators to require an outer steel jacket around tank cars, release valves on the cars and stronger seals on each end of them.
Recent accidents should compel regulators to require shippers immediately to pull the older cars from the tracks to be retrofitted or replaced with sturdier models, said Karen Darch, the co-chairman of a coalition of communities around Chicago that supports tougher federal regulations for rail lines.
“We need to do this now before something else happens,” Darch said in a phone interview.
--With assistance from Lynn Doan in San Francisco, Jim Snyder in Washington and Joe Carroll in Chicago. Editors: Jon Morgan, Steve Geimann