By LYNN DOAN, JOE CARROLL and JIM SNYDER
New emergency rules will require US energy companies using
railroads to carry crude must conduct tests to help ensure
that the oil cargoes will not explode or corrode holes
through tank cars after train derailments.
An order issued by the US Transportation Department (DOT)
requires oil explorers including Continental Resources and
EOG Resources to test the chemical composition of all
crude intended for shipment by rail. While the new rules are
focused on volatile Bakken crude, they also require more
robust tank cars for transporting crudes that are designated
as lower risk, such as bitumen from Canadas oil sands.
Its going to have far-reaching ramifications, and
I dont know for how long, said Marvin Trimble,
director of commercial development for Strobel Starostka
Transfer Canada Ltd., a Calgary-based rail services company.
Crude-by-rail shipments have soared alongside US oil
production as drillers using new technologies to
crack shale formations faster than pipeline
capacity to handle the outflows. The crude bonanza has
increased the risk of explosions and fires because much of
the new crude oils are more volatile than some traditional
domestic oils. During the past year, there have been 10
derailments of trains carrying crude in North America.
The directive addresses what the Washington-based agency
called an imminent hazard to the communities and
crude-hauling trains move. Companies that ignore the order
may be fined as much as $175,000 a day for each violation.
Individuals may also be subject to fines and up to 10 years
in prison, under the emergency order.
Petroleum crude oil may contain dissolved gases,
exhibit corrosive properties, and also may have toxic
properties, the agency said in its order.
The most severe recent incident occurred in July 2013 in Lac-
Megantic, Quebec. An unattended train carrying oil rolled
away, derailed and exploded in a fireball that killed 47
people and leveled half of the downtown. In December, a BNSF
Railway Co. train carrying crude from the Bakken formation
crashed in North Dakota, forcing the evacuation of a nearby
An investigation by the Federal Railroad Administration found
that shippers sometimes misclassified the oil they were
offering for sale, loading it into tankers that are not stout
enough to safely carry materials in the highest hazard
Misclassification is one of the most dangerous mistakes
to be made when dealing with hazardous materials, the
department said in the order. Misclassification may
indicate larger problems with company management, oversight
and quality control.
The agencys order was issued as railroad companies,
refiners and oil producers and distributors gathered at the
Crude by Rail 2014 conference organized by American Business
Conferences in Glendale, California.
The federal order threatens to reduce or delay shipments of
bitumen and other low-volatility fuels by ordering them
reclassified, according to oil-by-rail companies. The order
raises the risk level of an entire class of less-volatile
grades that must now be shipped in safer, more
robust tank cars.
Oils that were previously categorized as less flammable Group
III products must now be labeled as Group I or Group II,
which require safer cars.
The directive threatens to exacerbate a shortage of tank
cars, forcing US shippers to search for more protective units
designed to handle flammable crudes or risk curtailing
deliveries, Strobels Trimble said at the conference.
This order affects more than just oil coming out of the
Bakken, Mark Luitwieler, executive vice president of
operations for Peaker Energy, said at the industry gathering
yesterday. Shipments of heavier oils such as waxy crude
from Utahs Uinta Basin will be just as affected, even
if theyre less flammable, he predicts.
That Uinta stuff is just like peanut butter, said
Luitwieler, whose Houston-based company develops
The departments order caused confusion in the industry
as refiners and producers tried to understand what the new
requirements will mean to their operations and how broadly
they will apply to shipments across the country.
Tesoro's Mark Smith said he wasnt sure what new
procedures were being mandated since the company already
tests crude shipments.
Were taking samples all the time -- were
taking samples today, said Smith, vice president of
development, supply and logistics for the San Antonio,
What do you want us to do? What do you want us to test
for? asked George Stutzmann, director of supply,
trading and business development for oil refiner Alon USA
Energy. Im not really sure what this means or
what they expect from us.
Continental, the biggest producer of Bakken crude, lauded the
federal governments effort to improve the safety of
crude- by-rail shipments.
All crude should be properly tested, classed and
transported safely, Eric Eissenstat, the Oklahoma
City-based companys general counsel, said.
industry trade group
criticized the directive for leaving several questions
unanswered, including how often testing should be
conducted and how crude shipments might be affected.
The American Fuel & Petrochemical
in a statement it hoped the department will work
collaboratively to answer these and other unanswered
Last week, railroads agreed with US regulators to slow trains
hauling crude around urban areas and install safety equipment
in response to recent accidents.
Railroads have supported the administrations
pursuit of proper classification and labeling of petroleum
crude oil in tank cars by shippers prior to transport,
the American Association of Railroads said. This is
essential to ensuring first responders are able to safely and
appropriately respond in the event of an accident or
Federal regulators are separately considering requiring
upgrades to the DOT-111 tank car, which the US National
Transportation Safety Board has said must be strengthened to
reduce spill risks.
Senator Charles Schumer, a New York Democrat, said US
regulators need to do more to address the risks of moving
crude oil by rail by requiring a swift phase-out of the
Transporting crude oil by rail in outdated tank cars --
which have been proven to fail frequently upon derailment --
is a ticking time bomb, Schumer said today in a
conference call with reporters.
He also wants the speed restrictions agreed to by the
railroad industry as an additional safety measure to apply
Retrofitting the cars may increase rail costs by about 9%, or
$1/bbl, Mike Lutz, vice president of midstream for Bakken oil
producer Hess Corp., said at the conference yesterday.
Congestion on BNSF Railway Co. tracks in North Dakota has
already driven oil-by-rail costs up by about $1/bbl over the
past month, slowing deliveries already hindered by winter
storms, he said.
It may add some cost, but the testing itself is
probably small in the scheme of things, industry
consultant Andy Lipow, president of Lipow Oil Associates in
Houston, said by phone. Someones going to pay for
it, and ultimately its going to be the consumer.