Tank Cars

Refineries in Washington state have been reliable buyers of Bakken-sourced crude oil during the Shale Era, receiving an average of about 145 Mb/d — all of it by rail — over the past two-plus years. But a newly approved Washington law slashing the allowable vapor pressure limit for crude being unloaded from rail tank cars could hinder future growth in crude-by-rail shipments from North Dakota to the Evergreen State, or force Bakken producers to remove more butane and other “light ends” from the crude oil they rail west. It’s such a big deal that the state of North Dakota has indicated it will file suit to kill the new law. Today, we discuss Washington’s new law and its potential effects on Bakken crude oil producers.

The future pace of crude-by-rail growth in North America may depend on rulings expected by the end of 2014 from the US Department of Transport (DOT) concerning rail tank car designs mandated to carry crude oil safely. The costs of replacing or retrofitting the existing tank car fleet to meet such new standards - designed to reduce the risks associated with recent high profile accidents - will pass to rail car lessors and crude shippers who will end up paying higher lease rates. Today in the first of a two part series we look at how the rail industry can comply with new tank car standards.

Just like every other kind of mechanical equipment, rail tank cars require maintenance every once in a while. Valves can leak.  Linings wear down.  Railings, platforms, and brake equipment need periodic repairs.  And not surprisingly, the more miles you put on a tank car, the more maintenance it is going to need.  As the crude-by-rail phenomenon has grown, so has the rate of ‘bad orders’ – rail cars that must be taken out of service for maintenance.  Handling bad orders is a new issue for many producers and refiners just now getting their feet wet in the business. Everyone agrees that this is a very important issue, and the rail industry is not taking it lightly. Today we explore the implications of bad orders in the crude-by-rail market and how progressive solutions are on their way.

Crude-by-rail has had a huge impact on the market for tank cars.  Currently there are 53,000 tank cars on back order and more orders are coming in. That’s up from a backlog of 48,000 just a couple of months ago. The tank car manufactures are enjoying every bit of it but for the first time since the ethanol boom, they can’t keep up. In the old days it took 9 months to deliver a new car. Now, there is such a backlog that manufacturers can’t deliver a new car for 24 - 30 months.  Today we will review the rapidly evolving tank car situation based on a recent presentation made by Travis Brock from Strobel Starostka, a construction and rail services firm deeply involved in in the crude-by-rail markets.