Newspaper article The Canadian Press

Moody's: Quebec Train Disaster to Raise Costs for Shipping Oil by Rail

Newspaper article The Canadian Press

Moody's: Quebec Train Disaster to Raise Costs for Shipping Oil by Rail

Article excerpt

Moody's: Quebec disaster bad for oil-by-rail

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CALGARY - Credit rating agency Moody's says it expects the deadly train disaster in Lac-Megantic, Que., to make shipping oil by rail more costly, putting pressure on both major railroads and oil producers.

"The Quebec derailment -- likely North America's worst rail accident since 1918 -- will inevitably lead to increased U.S. and Canadian government scrutiny and permitting delays, along with higher costs for shippers," Moody's said in a report Thursday, less than a week after an oil-laden train derailed and exploded, killing dozens and incinerating a large portion of the town.

Capital and operating costs for rail companies are expected to rise, as has been the case for past rail accidents and oil spills, Moody's said. However, it said U.S. railroads have enough liquidity to cope with any new costly regulations.

Crude producers in North Dakota's Bakken region -- the origin point of the derailed train -- are expected to take a hit.

About two thirds of North Dakota's daily Bakken production -- at 727,000 barrels in April -- moves to market by rail in the absence of sufficient pipeline capacity.

Even though rail tolls are more expensive than those of pipelines, moving crude by train has some advantages, Moody's said. For instance, crude can move easily to coastal ports by rail, enabling it to be sold in lucrative overseas markets. Contracts to ship on rail also tend to be more flexible than on pipelines.

"But the accident threatens to delay the development of further rail routes, and will prompt a re-evaluation of pipeline transport as an alternative to rail," Moody's said.

"Today, refiners on the U.S. East and West Coasts buy Bakken and mid-continent crude at prices that satisfy both parties, but they rely on rail, since most major North American crude pipelines run north to south, not east or west. …

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