By BETSY MORRIS and RUSSELL GOLD
The Federal Railroad Administration plans to start asking shipping companies to supply testing data they use to classify their crude-oil shipments, saying it is concerned some shipments are being transported in tank cars that aren't safe enough.
In a letter to American Petroleum Institute CEO Jack Gerard last week, the FRA said it is investigating whether some crude shipments contain chemicals -- possibly from the hydraulic-fracturing process used to extract it -- that make them more hazardous than their classification indicates.
The agency told the API it also suspects mixes of crude and other chemicals might be the cause of an increase in damage to tank cars caused by "severe corrosion." If shippers can't supply their testing data, the FRA said in the letter, it will work with the Pipeline and Hazardous Materials Safety Administration to test the shipments independently.
Companies routinely add hydrochloric acid, which is corrosive, to fracking fluid to dissolve minerals. They also add chemicals to kill microorganisms and reduce friction in oil. Frack fluids are exempt from federal disclosure laws, but some companies voluntarily provide details, and some states require a thorough ingredient list.
The action is the latest by the agency to toughen regulation of the transport by rail of crude oil after a runaway train hauling 72 tank cars with crude oil derailed and exploded last month, killing 47 people and ravaging the Quebec town of Lac-Megantic.
The Quebec disaster follows a number of serious accidents involving hazardous materials and tank cars in recent years that have raised federal regulators' concern. More than 34 million bbl of crude were delivered to US refineries by train in 2012, a five-fold increase compared with a year earlier, according to the Energy Information Administration.
The Canadian Transportation Safety Board said it would analyze and compare numerous fluid samples taken from the Lac-Megantic accident "to verify the properties of the petroleum product in these tank cars' and to help figure out "why the oil created such a fierce fire that night." It is also analyzing metallurgical samples, damage records and photographs to determine how well the tank cars involved in the derailment were prepared for a crash.
The company that operated that train, Montreal, Maine & Atlantic Railway Ltd., filed for bankruptcy protection Wednesday in US Bankruptcy Court in Bangor, Maine. Its Canadian counterpart filed for protection from creditors.
The latest FRA action "looks like a shot over the bow," said Grady Cothen, a former FRA safety official who is now a transportation-policy consultant. "They seem to be saying, "Get your house in order or we'll do it for you.'"
The FRA moves will likely pose difficulties for some shippers. Oil producers and refiners are increasingly using rail in Texas and North Dakota, where there aren't enough pipelines to get the crude to markets that will command the highest price.
Prentiss Searles, marketing-issues manager for the American Petroleum Institute, said the institute was reviewing the letter to see what, if anything, needed to be done to respond to the FRA's concerns. "Ultimately, we're going to follow the rules and requirements that currently exist. If somebody made a mistake and put the wrong type of crude in the wrong type of tank care, that should not happen," he said.
EOG Resources, a Houston-based shipper with rail yards in Texas and North Dakota, said it was "in close communication with our railroad carriers and is currently reviewing the topics raised by the Federal Railroad Administration."
Jeff Hume of Continental Resources, an Oklahoma City-based crude producer, said, "We meet all [Department of Transportation] specifications. If the DOT deems it necessary to change those specifications, we will support what safety experts recommend."
In the letter to the Petroleum Institute, Thomas J. Herrmann, acting director of FRA's office of safety assurance and compliance, spelled out numerous reasons for the agency's concern. In one case, the FRA said it found that a company was shipping crude that should have been classified as flammable in a tank car that hadn't been designed for that material. The agency could "only speculate as to the number of potential crude-oil shipments that are being made in violation of Hazardous Material Regulations," he wrote.
Shippers need to know the chemical makeup of substances they are shipping, the letter said. But FRA audits indicate the oil is often classified based on data sheets that contain inadequate data, it said. Crude is frequently shipped in unit trains made up of scores of tank cars, containing oil from different shippers and many wells, some of which has been blended together. The data don't reflect testing from the many different sources, the letter said.
The FRA also noted recurring problems with what it said appeared to be overloaded tank cars. Proper tank-car loading is based on a calculation that involves relative temperatures and gravity to determine the quantity to load without overloading.
George King, an engineer and technology consultant for Apache, said hydrochloric acid used in fracking typically doesn't return to the surface. "I have never seen anything stronger than a very, very weak vinegar come back in terms of acid," he said.
However, Mr. King said the acid won't mix with crude oil and if stored in a tanker, will settle to the bottom. "Could it be corrosive on steel? Yes," he said.
Dow Jones Newswires