Berkshire’s BNSF to apply $1,000 surcharge on older crude tank cars
Berkshire’s BNSF to apply surcharge on older crude tank cars
Published Friday, Oct. 24 2014, 6:35 PM EDT
Last updated Friday, Oct. 24 2014, 6:59 PM EDT
BNSF Railway Co. plans to apply a $1,000 (U.S.) surcharge for each older crude tank car, denting profits for shale drillers in North Dakota.
The railway owned by Warren Buffett’s Berkshire Hathaway Inc. is the first major U.S. operator using fees to encourage shippers to scrap the puncture-prone older cars. The charge, which goes into effect Jan. 1, would add about $1.50 a barrel to the cost of transporting oil on them.
The Obama administration in July proposed phasing out thousands of the older tank cars within two years and lowering speed limits as part of new rules to reduce the risk of hauling crude by rail. The plan followed a series of fiery accidents, including the derailment and explosion of a crude train last year that killed 47 people in the Quebec town of Lac-Mégantic.
“Ultimately it’s the producer who’s going to get impacted,” said Andy Lipow, president of Lipow Oil Associates LLC in Houston. “The refiner is going to look at what is the delivered cost versus alternatives” such as imported oil.
The surcharge will pertain to cars known as DOT-111s and won’t apply to cars called CPC-1232s that are built to higher standards adopted in October, 2011, according to a BNSF notice. Mike Trevino, a spokesman for BNSF, confirmed the notice.
The extraction of oil from shale fields with limited pipelines, such as in North Dakota’s Bakken, caused U.S. rail carloads of crude to surge to 415,000 last year from 9,500 in 2008, according to the Transportation Department.
Tank cars typically hold about 700 barrels of oil, which means the surcharge would boost the cost of shipping in older cars by $1.50 a barrel. The cost to ship crude by train to East Coast refineries from North Dakota is $9 to $10 a barrel, San Antonio-based Tesoro Corp. said in a September presentation.
Some refiners, such as PBF Energy Inc., Phillips 66 and Tesoro, have already filled their fleets with tank cars compliant with the post-2011 rules.
BNSF, which operates tracks that connect into the Bakken and other shale oil fields, said in February it plans to order 5,000 new crude tank cars with safety standards higher than the CPC-1232s in an effort to push shippers toward safer cars.
Canadian Pacific Railway Ltd. adopted a $325 surcharge in March for older crude tank cars in the U.S. that don’t meet the CPC-1232 standard, the company said in February. Earlier this year, Canadian National Railway Co. introduced a rate structure to “create an economic incentive” for shippers to use the safer tank cars, Mark Hallman, a company spokesman, said Friday in an e-mailed response to questions.
The American Petroleum Institute, which represents shippers of crude oil, supports more safety upgrades for tank cars beyond what the industry adopted in October, 2011, said Brian Straessle, a spokesman for the institute, in an e-mail. The safety focus shouldn’t only be on tank cars, he said.
“Because there are limits to what tank car design can achieve, we must take a comprehensive safety approach to prevent accidents before they happen, mitigate any that occur and enhance emergency response,” Straessle said.