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Industry, Feds Agree to Address Safety of Rail Crude Transport

In a meeting hosted by the U.S. Department of Transportation (DOT) Thursday, rail and oil industry representatives pledged to improve the safety of rail transport of U.S. crude oil. Following the meeting, however, news media reported criticism among the various representatives.

The railroad industry and some of its individual companies have been pushing for more advanced tank car standards for some time, and now they are reiterating that DOT needs to accelerate its actions to set new standards. Oil industry representatives were critical of both the railroads for not doing more to prevent derailments and of DOT for not moving more quickly and decisively.

DOT said this month that new regulations requiring upgraded rail tank cars are not likely to be in place until 2015 (see Shale Daily, Jan. 15). The rail industry thinks that is too slow. The proposed rules are scheduled to be released Nov. 12, with a public comment period through early January 2015, according to PHMSA officials, who said the timeline could be altered.

PHMSA recently issued a safety alert on Bakken crude oil, warning that the light, sweet crude may be more flammable than heavy crude oil (see Shale Daily, Jan. 3).

Separately on Thursday during a quarterly earnings conference call, Houston-based CSX Corp. CEO Michael Ward and other senior executives said tougher crude oil rail regulations won't slow the growing volumes of U.S. crude being transported by rail to refineries around the nation. Last November, 71% of the record-setting crude production in the Bakken in North Dakota was shipped to refineries by rail.

On the quarterly earnings call, CSX reported a continuing slide in its coal-hauling business, noting the company lost $295 million in coal revenue last year after losing $500 million in 2012. Citing a "new energy environment" for the railroad industry, Ward said that "headwinds in coal" will persist in 2014.

In response to an analyst's question about the just-announced PHMSA review of new tank car standards, Ward pointed out that most of the cars are owned by rail customers or leasing companies, not the rail companies. He noted the ongoing discussions about requiring retrofits to the tank cars to bolster their ability to withstand puncturing and resulting explosions and fires in the wake of derailments.

"There have been various discussions of how much those retrofits should [cost], and it will probably be a number of months for that to evolve," Ward said. "Our guess is that is that the required expense, while large, won't impact our ability to move this crude by rail."

CSX moved about 46,000 loads of crude last year, primarily to eastern U.S. refineries. The rail company average between one and two crude-carrying trains daily.

"So in 2014 we expect to increase that crude, and you can use a number of about 50% [more shipments], and we will move to two trains a day on a continuous basis over time," said Clarence Gooden, chief commercial officer.

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