He notes that oil from North Dakota more volatile than expected.
Burlington Northern Santa Fe locomotives are seen at a maintenance and overhaul building Tuesday, Nov. 3, 2009, at the BNSF rail yard in Galesburg, Ill. Warren Buffett’s Berkshire Hathaway Inc. on Tuesday agreed to buy Burlington Northern Santa Fe Corp. for $34 billion. (AP Photo/The Register-Mail, Bill Gaither)
Warren Buffett, the Omaha billionaire who four years ago bought the nation’s second-biggest railroad, said Monday that rail tank cars need to be upgraded to safely transport the surging production of oil from North Dakota and Texas.
“It’s fair to say that we’ve found in [the] last year or so that it’s more dangerous to move certain types of crude than was thought previously,” Buffett said in an interview on CNBC. “There’s no question about it.”
The comments came little more than a week after the BNSF Railway Co., which Buffett-led Berkshire Hathaway Co. bought in 2010, announced it will buy 5,000 stronger tank cars with thicker walls and other safety protections. The decision came after several derailments in 2013 led to oil spills, fires and deaths. One accident involved a BNSF train that exploded after derailing near Casselton, N.D., in December; no one was injured.
With production growing faster than pipeline capacity, oil companies are choosing rail as a means to deliver crude to refineries. Proponents say rail is a faster and more efficient way to move oil, while critics say the risk of accidents is high, particularly because trains go through urban areas that pipelines tend to avoid.
Fort Worth, Texas-based BNSF transports six out of every 10 barrels of oil produced in North Dakota, with most of that moving through Minnesota. An average of six oil-carrying trains pass through the Twin Cities each day, according to the Minnesota Department of Transportation.
Last week, the U.S. Department of Transportation, citing tests that showed North Dakota crude oil was more likely to emit flammable gases, ordered companies to test each batch for traits such as the percentage of flammable gases trapped in the oil.
“There will be changes made, and there should be,” Buffett said on CNBC. “The oil from the Bakken [oil field in North Dakota] and Eagle Ford [in central Texas] has turned out to be more volatile than people anticipated. That requires, for one thing, that we lower the [train] speeds. But it requires a new kind of tank car, too.”
In his annual letter to Berkshire Hathaway investors, released this weekend, Buffett repeated his conviction that owning BNSF was a bet on the economic future of the U.S. and that, due to large capital investments, America’s railroads have never been in better shape. BNSF spent $4 billion on maintenance and equipment last year and has said it will increase such capital spending to $5 billion this year.
“It’s a business that has real economic advantages if you look at fuel costs and at drivers’ wages on the highway,” Buffett said on Monday. “As long as more goods move from place to place in this country, rails will get their share. It should be a very profitable business.”
Despite being a railroad proponent, Buffett said he’s not against the environmentally controversial Keystone XL Pipeline that would bring crude oil from Alberta, Canada, through the Dakotas and Nebraska to refineries on the U.S. Gulf Coast.
“It’s not that big a competitor,” Buffett said. “I think the Keystone pipeline is probably a good idea for the country.”
Opponents of the pipeline say the risk of environmental damage is greater. On CNBC, Buffett said he wasn’t sure which transportation method was safer in the long run. “If you measured moving millions of barrels for 100 years, one versus the other, I’m not sure how it would come out,” he said.
Dave Christianson, project manager for the Minnesota Department of Transportation, said Buffett’s comments put an even greater spotlight on rail safety and could speed the development of new federal standards for tank cars.
“Buffett is forcing the issue by asking that older cars be retired as fast as possible and that new cars be built as fast as possible,” Christianson said. So far, BNSF is alone in saying it will undergo the expense of buying new tank cars.
The new cars are made with stronger steel shells that are designed to stretch before cracking or puncturing and have steel shields on either end to act as bumpers in a collision, Christianson said. In addition, the tank cars have better protection for pressure relief valves on the tops and bottoms of the cars, which should protect the valves from being sheared off in an accident or derailment.
“Our position is that a safer tank car that can answer the problem is already being built,” Christianson said. “The best way to keep the public safe is to adopt this car design and approve a safety standard based on it.”
Last month, U.S. railroads agreed to voluntarily slow down oil trains in 46 “high-threat urban areas,” including the Twin Cities. The new speed for oil trains after July 1 is 40 mph. BNSF said it will reduce its 50 mph zones around the Twin Cities to 40.
The worst oil-train accident last year happened in July, when a train derailed and exploded, killing 47 people in Lac-Mégantic, Quebec.