U.S. Issues Emergency Testing Order to Crude Oil Rail Shippers
Move by Transportation Department Response to Crude-by-Rail
Wall Street Journal
25 February 2014
By Russell Gold and Laura Stevens
Federal regulators issued emergency rules Tuesday requiring
extensive tests on crude oil moving by rail, concluding the
system had become "an imminent hazard to public health and
safety and the environment."
The order is aimed at operations in one of the U.S.'s booming
oil fields, the Bakken Shale in North Dakota, where production
has far outpaced the availability of pipelines to move crude to
In just a few years, hundred-car trains full of Bakken oil have
started moving through major North American cities—and been
involved in several explosive accidents.
The Transportation Department said the order is aimed at Bakken
crude but will cover shipments from anywhere. While oil is
classified as a hazardous material, it isn't generally linked to
explosions. But Bakken crude is more volatile than other oils
and is more likely to emit flammable gases, as The Wall Street
Journal reported earlier this week.
The order will require companies to test each batch of crude for
an array of characteristics, from the temperature at which it
boils to the percentage of flammable gases trapped in the oil
and the vapor pressure, which is created when crude emits gases
that can build up inside railcars. Previously, federal rules
didn't require that crude be tested as extensively; indeed it
only required that crude be properly classified and didn't spell
out in any detail how often to test the crude.
The testing requirement goes into effect immediately with a
stiff penalty for noncompliance. "Any time the government is
talking about $175,000 per incident per day in fines, they're
pretty serious," says Kevin Book, an energy analyst at ClearView
Energy Partners LLC.
The American Petroleum Institute, which has been representing
the energy industry in its negotiations with the government,
didn't respond to requests for comment. The trade association
hadn't yet provided data that the DOT had requested in order to
reach a voluntary agreement.
The crude-by-rail industry was almost nonexistent five years
ago, but it has boomed along with petroleum output. In 2008, a
train of 100 tankers full of crude departed a terminal in North
Dakota once every four days, according to rail-industry
statistics. By 2013, a unit train was departing every 2 1/2
The oil industry embraced train transport because it was quicker
and easier to build rail infrastructure than it was to lay
pipelines. In addition, even though moving oil by trains was
more expensive than via pipelines, the industry could ship the
crude to wherever prices were highest.
Crude has been heading to refineries from the Canadian province
of New Brunswick to Washington state, and south to the Gulf
Coast, home to the biggest cluster of refineries in the U.S.
Stephen H. Brown, vice president for federal government affairs
at refiner Tesoro Corp., said refiners applaud the new
requirements. "I don't think there's anyone in the industry who
doesn't want to move this product as safely and efficiently as
possible," he said.
Eric Eissenstat, senior vice president of Bakken oil producer
Continental Resources Inc., said in a statement that the company
was still studying the order but agreed "that all crude oil
should be properly tested, classed and transported safely."
But the American Fuel & Petrochemical Manufacturers, which
represents chemical companies and refiners, said the order
"leaves several questions unanswered," including exactly how
often crude should be tested and whether the new rules would
affect the industry's ability to transport oil.
Last week, the American Association of Railroads agreed to a
number of voluntary safety measures for transporting crude by
rail, including lowering some speed limits, redirecting trains
around high-risk areas, examining tracks more frequently and
improving braking mechanisms. The group said Tuesday that it
supports the DOT's order.
Proper testing and classification is essential in ensuring that
first responders are able to react safely after an accident,
spokeswoman Holly Arthur said in a statement. "The safe movement
of crude oil by rail is shared responsibility among all
stakeholders in the energy supply chain," she said.
Peter Iwanowicz, executive director of Environmental Advocates
of New York, said he wished the government had gone further.
"Merely requiring testing but not having an action plan or a
requirement to release the testing data publicly still places
our communities at risk," he said.
Federal regulators have been investigating the makeup of Bakken
crude after accidents involving exploding tank cars—including
one in Quebec in July that killed 47 people and leveled a town.
The DOT said preliminary estimates of costs at the Quebec
accident exceed $1 billion.
Derailments, which are typically caused by track problems or
equipment failure, were found to have triggered the accidents.
The emergency order also prohibits moving crude using certain
railcars that are suitable only for less hazardous materials.
The American Association of Railroads said it would affect 1,100
tank cars, known as AAR-211s, or about 3% of the total crude-oil
Several companies, including Tesoro and Irving Oil Corp., have
said they would phase out older railcars and use upgraded cars
with thicker shells and other new protective measures.
In a speech last week, E. Hunter Harrison, chief executive of
Canadian Pacific Railway Ltd., said companies should disclose
more about the crude they were transporting. "I think that'd be
good public relations on their part," he said. "It's the unknown
that worries people."
A U.S. House subcommittee is expected to meet on Wednesday to
discuss passenger and freight rail safety.
—Chester Dawson and David George-Cosh contributed to this
Write to Russell Gold at email@example.com and Laura Stevens