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Commentary

Oil Trains, Pipelines and Tanker Ships



Everyone nowadays seems to either love or hate “fracking” for oil and natural gas in U.S. shale formations.

But fracking enjoys an enviable safety record. After all, a large fraction of it is done a mile underground. Not much, if any, evidence of groundwater contamination has been found at fracking sites.

Following the lame-duck Senate’s defeat of a bill that would have authorized construction of the Keystone XL oil pipeline, attention has shifted to concerns about transporting crude oil from North Dakota’s Bakken shale and oil sands in Alberta to U.S. refineries, many of which are located on the Texas and Louisiana coast.

Refineries located on the East Coast and in California would also obtain feedstock were it not for the bottleneck created by the Jones Act (passed in 1920), which prohibits shipments of cargoes (including crude oil) from one U.S. port to another unless on an American-flagged vessel crewed largely by American sailors.

With the severe constraint on ocean-going oil tankers and limited pipeline capacity, shipping oil via railroad tanker cars is the only viable option. No longer relics of the past, freight railroads are carrying about two-thirds of North Dakota’s Bakken oil. Overall, more than 10 percent of the nation’s total oil production travels by rail. In the last quarter of 2013, some 71 million barrels of crude oil were shipped by rail, more than 10 times the volume of oil shipped that way in 2008.

The growing volume of railroad traffic raises safety concerns. Several oil trains derailed in the past two years, including one in Quebec that cost the lives of 47 people in the town of Lac-Mégantic. But bad press is more effective than government regulators in correcting the safety problems that led to that horrible accident. The railroads responded immediately to reduce train speeds, particularly when oil trains are moving through populous areas, and they have lent their support to efforts to replace or upgrade thousands of older rail cars known as DOT-111s.

Interestingly, ever since the heyday of John D. Rockefeller Sr., it is the major oil companies that own the tanker cars, which they then lease back to the railroads for use in transporting oil from the gathering fields to the refineries.

Railroads move hazardous materials—crude oil and chemicals, among other flammable cargoes—without mishap more than 99 percent of the time. Nevertheless, railroads in 2012 pumped a record $25.5 billion into upgrading and maintaining the freight railroad system’s infrastructure. And, since then, billions more have been invested in making the system more efficient and safer. The same attention to safety is true of the pipeline system, which carries some of the nation’s oil and most of its natural gas.

Even so, the U.S. Department of Transportation wants the existing fleet of rail cars to be replaced or upgraded in two years. Such a rapid phase-out, however, could restrict the production of oil and gas, costing consumers as much as $45 billion, according to a study done by ICF International Inc. Lengthening the replacement period to four years would help hold down that cost. So, too, would repealing the outmoded Jones Act and allowing U.S. crude oil to be exported to the rest of the world.

Without oil trains, oil production in the United States would not be booming, and the United States would not be on the verge of becoming the world’s biggest oil producer, surpassing even Saudi Arabia. Thanks to the shale revolution, the nation’s economy is gaining strength, manufacturing is making a comeback, and tens of thousands of jobs have been created, along with billions in new tax revenue.

The concern over the safety of oil trains and pipelines perhaps reflects the fact that we have reached a point in our economic history where we can afford to worry about very small risks.

Eliminating near-zero safety risks uses resources that could be spent to reduce much larger—and thoroughly proven—risks. Real dangers to our health and safety demand attention. Shipping crude oil by rail and pipeline is not among them.


William F. Shughart II is Research Director and Senior Fellow at the Independent Institute, J. Fish Smith Professor in Public Choice in the Jon M. Huntsman School of Business at Utah State University, and editor of the Independent Institute book, Taxing Choice: The Predatory Politics of Fiscal Discrimination.


From William F. Shughart II
TAXING CHOICE: The Predatory Politics of Fiscal Discrimination
So-called “sin taxes”—the taxing of certain products, like alcohol and tobacco, that are deemed to be “politically incorrect”—have long been a favorite way for politicians to fund programs benefiting special interest groups. But this concept has been applied to such “sinful” products as soft drinks, margarine, telephone calls, airline tickets, and even fishing gear. What is the true record of this selective, often punitive, approach to taxation?







  • MyGovCost.org
  • FDAReview.org
  • OnPower.org
  • elindependent.org