Crude Summit: Quarterman sees dusk of railed crude

OREANDA-NEWS. January 22, 2016. The former US regulatory chief who oversaw the kickoff of new tank car designs and other controversial safety rules said that railed crude movements have entered a permanent decline.

Former Pipeline and Hazardous Materials Safety Administration (PHMSA) head Cynthia Quarterman told attendees of the Argus Americas Crude Summit today that safety concerns, coupled with a changed oil market and new infrastructure, promise to move crude back onto more traditional modes like pipelines.

"I would bet my money on crude by rail diminishing back into history over the next five years," Quarterman said.

Quarterman left the agency in October 2014 to take a position as a distinguished fellow at the Atlantic Council think tank. PHMSA released new design and retrofit standards for cars that carry crude and ethanol last May, and the omnibus transportation law passed late last year tweaked some of those regulations.

Quarterman added that if crude price spreads make onshore grades such as Bakken crude from the Williston basin economic on the east and west coasts again, rail would be an option in the absence of pipelines. But growing pipeline capacity to the US Gulf coast, namely Energy Transfer's proposed 450,000-570,000 b/d Dakota Access project from the Bakken fields to Texas, coupled with the end of export restrictions could make that a more profitable alternative than railing to the Atlantic or Pacific coasts.

Likewise, Quarterman said that crude by rail will remain viable for Canadian production until a better pipeline option emerges, although all the major projects out of Alberta are mired in various levels of regulatory delays. In the present, lower crude should give crude shippers pause as to whether rail is worth it.

"I think companies will also be considering their risk management as well," she said. "The risk profile of shipping 70,000 bl of crude in a train when oil sells at \\$100/bl will be different from shipping the same amount when oil is valued at \\$25/bl."