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Reuters, Published February 22 2014

BNSF plans to buy 5,000 safer oil railcars

HOUSTON - BNSF Railway Co. plans to buy its own fleet of up to 5,000 new crude oil tank cars with safety features that exceed the latest industry standards, said the company, a unit of investor Warren Buffett's Berkshire Hathaway Inc.

The unusual step by one of the largest U.S. railroads aims to further the industry's push for safer movement of crude by rail after several recent accidents, including one involving a BNSF train in North Dakota in December.

The company, a major mover of crude by rail throughout the United States, plans to seek bids from railcar makers for up to 5,000 new tank cars with thicker walls and ends, increased protection of safety and pressure valves, and other features that go beyond industry standards adopted two years ago.

BNSF's plan is atypical for a railroad, which generally owns only the tracks and locomotives that pull trains. Railcars are usually owned by leasing companies or firms such as refiners that sometimes buy cars for their own fleets.

The December crash of a BNSF crude train in North Dakota involved railcars that did not meet industry safety standards, according to investigators. The train collided with a derailed grain train, setting off fires that burned for more than a day. No one was hurt.

Crude-carrying tank cars built after October 2011 are based on stronger design standards recommended by the Association of American Railroads (AAR) trade group. Those design standards feature stronger hulls and reinforced valves less likely to puncture or leak in a derailment.

Last week, Canadian National Railway Co and Canadian Pacific Railway Ltd said they would charge higher rates for customers that move crude in railcars built before October 2011, which the National Transportation Safety Board said in 2009 were unsafe.

BNSF declined to comment on possible pricing to shippers opting to use the railroad's tank cars once they are built, saying such information is proprietary. Other U.S. railroads also declined to comment last week on the Canadian railroads' decision to charge shippers more for using older tank cars.

BNSF did not identify railcar makers that it will invite to bid, but manufacturers in the United States include Trinity Industries Inc, American Railcar Industries Inc and Greenbrier Cos Inc.

Earlier this month, before saying it would take bids for new oil railcars, BNSF said it would spend $1.6 billion this year on locomotive, freight car and other equipment purchases. That was part of a $1 billion increase in its annual capital budget to $5 billion.

BNSF did not say when it expects to take delivery of the cars. American Railcar Industries said that its tank railcar manufacturing unit was maxed out, though Greenbrier recently said it had capacity for more work.

Rapid proliferation of moving oil by train started more than three years ago, with shipments surpassing 780,000 barrels a day in 2013 - a 71 percent jump from 2012, according to AAR.

The growth resulted from a lack of pipeline infrastructure to move burgeoning inland output to refining markets, particularly on the U.S. West and East coasts, where refiners were otherwise highly dependent on more expensive imports.

Refiners with coastal plants have heavily embraced oil by train, building offloading facilities to receive it. BNSF moves more crude from North Dakota's Bakken shale than its peers.