Analyzing the Risk of Transporting Crude Oil by Rail
AbstractThe domestic crude oil industry was witnessed a remarkable expansion over the past ten years. Much of the new production occurs in regions not well serviced by existing oil pipelines, and so firms have increasingly turned to rail as a mode of transport. In turn, this has led to concerns related to safety. In response to these safety concerns, the US Department of Transportation (DOT) adopted a new rule governing rail shipments of oil. These observations point to the importance of understanding the risks associated with rail shipments.
In this paper I provide a careful empirical assessment of the risks associated with shipping a given amount of crude by rail. Using data from the department of Transportation, I construct an empirical model that links rail incidents to the quantity of oil shipped by rail. This data includes monthly observations on the number of carloads of crude oil shipped between January 1, 2009 and December 31, 2014, as well as information on safety incidents associated with these shipments. I find a statistically important link between the number of cars containing crude oil shipped by rail in a given month and the distribution of incidents; in particular, increases in shipments are associated with a rightward-sift in the distribution. I find similar effects relating shipments to the volume of oil spilled as well as the dollar damages from spills. These effects are noticeably more important in states where recent increases in oil production – mainly associated with the deployment of unconventional techniques – has been most pronounced.