The U.S. railroad industry a few short years ago wasn’t involved in the unconventional oil and gas revolution, but major rail operators that include BNSF are now gearing up to move a lot more crude oil, a senior executive said last week at the Williston Basin Petroleum Conference in Bismarck, ND.

Executive Chairman Matt Rose, who has been touted by some as a possible successor to Berkshire Hathaway CEO Warren Buffett, whose company owns BNSF, said the U.S. rail industry is experiencing tremendous growth, some driven by the increase in rail shipments of crude oil.

“Crude oil has played a role as exemplified by North Dakota, which in 2013 accounted for 20% of all of the U.S. rail system growth,” Rose said. “So there is a reason that $400 million of our 2014 capital spending plan is targeted for one state — right here in North Dakota.” Half of the U.S. rail industry’s 800,000 units of growth last year was handled by BNSF. “This year’s growth so far shows no signs of slowing down,” he said, noting that BNSF volumes handled the last two weeks of April were the largest any U.S. railroad has ever handled.

Rose said in the first quarter this year, crude oil rail transport increased by 29,000 units, with BNSF handling nearly half of the increase. “Crude shipments by rail were up 100% year over year in 2013 on BNSF,” he said, adding that so far this year, volumes are up 20%.

BNSF’s crude activity last year amounted to about 700,000 b/d, and it won’t be long before it is handling 1 million b/d of crude-by-rail shipments. Rose emphasized that the ramp-up in rail shipments of oil has been pronounced, similar to what has happened in the past with grain. North Dakota is a global grain and petroleum center. Growth in crude rail shipments has “followed the same model” as grain, increasing sharply during the past five years, In fact, demands from the grain, coal and crude oil sectors all collectively placed “unprecedented pressure” on BNSF last fall.

The level of growth in the U.S. rail industry is underscored by the company’s record $2.4 billion in capital investments last year and plans for investing another $5 billion in 2014 and 2015, Rose said. Thousands of new employees, rail cars and locomotives are part of the investment mix.

In regard to safety concerns that were elevated by the BNSF crude tank car derailment near Casselton, ND, last December, Rose said the railroad operator has a “broad-based risk reduction program” now in place (see Shale Daily, Dec. 31, 2013). BNSF is supporting the development of a next generation of crude tank cars to replacement the U.S. Department of Transportation’s sanctioned 111 design tank cars.

“We support the next generation of tank car — not because we believe it will survive a high-speed impact but because it will give us more opportunity to respond. It is the reduced possibility of release that is most important because there is potential volatility of this product that in the aftermath of Casselton it now appears to have.”

Inhibitors in expanding North American crude oil supplies, such as the Western Canada oilsands, will be mitigated by increased rail shipments, according to Barclays Research analyst Warren Russell. “What cannot flow on the constrained pipelines will go by rail, which does not appear threatened by new safety regulations at this time,” he said earlier in May. He estimated that about 400,000 b/d of rail onloading capacity was expected to come online in the second half of this year.