The volume of crude oil and ethanol transported by rail has increased by orders of magnitude in the past three years. A significant portion of these shipments is coming from the Bakken field in North Dakota, whose rapid development and limited pipeline infrastructure results in much of the crude oil needing to be shipped by rail tank cars. The majority of these shipments are directed toward various port facilities on the east coast of the United States.

A series of serious rail accidents in both the United States and Canada has caused safety to become a top priority for the rail industry, the oil and gas industry, and the communities through which these shipments travel. A runaway train carrying Bakken crude oil caused the tragic Lac-Mégantic disaster in July 2013 that claimed 47 lives. A derailment in Casselton, North Dakota in December 2013 resulted in the evacuation of thousands of residents. Another Bakken crude oil train moving at only 24 miler per hour derailed in Lynchburg, Virginia in April 2014, sending flaming crude oil into the James River.

While these developments have prompted extensive federal attention to these risks as regulators struggle to find solutions, the states, led by New York, and environmental organizations are becoming increasingly active and vocal in their concerns.

CURRENT REGULATORY STRUCTURE FOR RAIL TRANSPORTATION OF FLAMMABLE MATERIALS

The federal regulation of rail shipments of flammable liquids, including crude oil, is divided among several agencies. Tank car specifications are set by the Pipeline and Hazardous Materials Safety Administration (PHMSA) within the U.S. Department of Transportation (DOT). The operation of railroads, including the transportation of hazardous materials and the routing of trains carrying hazardous materials, is regulated by DOT’s Federal Railroad Administration (FRA). Monitoring the whole system is the National Transportation Safety Board (NTSB), which has no regulatory authority, but issues safety recommendations to federal and state regulatory agencies, industry and safety standards organizations, emergency response organizations, and affected industry participants.

State agencies play a supporting role to the authority and jurisdiction of these federal agencies by partnering with them to conduct rail inspections, regulate bulk petroleum storage, and ensure emergency response plans are adequate and in place. Local governments also play a central role. Local fire, police, and rescue units are responsible for carrying out emergency plans and responding first to rail incidents.

NATIONAL TRANSPORTATION SAFETY BOARD FORUM ON RAIL TRANSPORTATION SAFETY

On April 22-23, the NTSB hosted “Rail Safety: Transportation of Crude Oil and Ethanol.” Regulators participating included the PHMSA, FRA, and Transport Canada. Interested organizations represented at the Forum were the Association of American Railroads, the Railway Supply Institute Committee for Tank Cars, The Greenbrier Companies (manufacturer of freight car equipment), CSX Transportation, the American Petroleum Institute (API), the Renewable Fuels Association, Union Pacific Railroad, Sharma and Associates, Inc. (railroad engineering consultants), and the National Fire Protection Association, among others.

The Forum’s purpose was fact-gathering, and included panels from all related industry players, including the oil and gas and ethanol industries, and focused on tank car design, rail operations and approaches to risk management, emergency responses to spills, the scope of existing federal oversight, and current industry initiatives.

At the Forum, Transport Canada, the Canadian equivalent to DOT, announced that it is requiring removal from use 5,000 North American DOT-111 standard tank cars that lack protective shields. An additional 65,000 standard tank cars will be required to be retrofitted or phased out within three years. Transport Canada will also require railways to provide an emergency response assistance plan for all trains with at least one car filled ten percent with crude oil, and limit the speed of trains to 50 kilometers per hour.

In light of Canada’s recent moves, the outgoing NTSB Chair Deborah Hersman was critical of the U.S.’s slow response. The AAR has reported that of the 92,000 DOT-111 standard tank cars in use, only 15% meet current standards, and even those may require safety upgrades. In January 2014, U.S. and Canada issued an unprecedented joint warning about DOT-111 standard tank cars, citing them for “insufficient lining, external shields, and venting to protect against punctures or gas build-ups that have been factors on recent fiery derailments involving crude.”

Moreover, representatives from emergency response organizations told the NTSB at the recent Forum that first responders are unable to handle large-scale crude oil train derailments; therefore the railroad industry should provide equipment such as foam fire suppressants, in addition to technical assistance and unified control.

FEDERAL AGENCIES GRADUALLY RESPOND TO INCREASED SCRUTINY AND OVERSIGHT

Several initiatives have already been undertaken in the U.S. and Canada to address crude oil and ethanol rail transportation safety concerns.
In August 2013, PHMSA and FRA launched “Operation Classification.” Operation Classification’s intent is to verify that crude oil is being properly classified in accordance with federal regulations and to provide better safety information for state and local emergency personnel responding to spills. The first set of findings released from this review determined that crude oil extracted from cargo tanks was not properly classified, resulting in PHMSA issuing three Notices of Probable Violation to the companies involved.

Earlier this year, DOT proposed a set of voluntary immediate actions to be taken by the railroads to improve the safety of crude oil transport. The AAR signed on to these initiatives on February 20, 2014, with individual railroads signing on subsequently. These voluntary measures included: (1) increasing track inspections; (2) lowering speed limits in cities; (3) analyzing the safety of routes; (4) strengthening emergency braking systems; and (5) upgrading trackside safety technology. The Railroad Workers United (RWU) has since adopted a resolution against using excessively longer and heavy trains, which are used by large companies involved in the transport of crude oil.

In late February 2014, DOT issued an Emergency Order calling for stricter testing of crude oil before shipping by rail to help combat this problem. This order was then clarified the following month to ensure that required testing determines the flash and boiling points of crude oil cargoes shipped from the Bakken oil fields. Additionally, the API, in conjunction with the PHMSA, plans to develop new standards for the testing, classifying, loading, and unloading of crude oil. Debates occurred at the NTSB forum as to whether the crude oil regulations already in place and those to be implemented should also be applied to other flammable liquids.

Next, in April 2014 the FRA proposed a rule on minimum train crew size which would require crews of at least two persons for crude oil trains, a practice already employed by Class 1 railroads. Finally, the FRA submitted to the White House Office of Management and Budget a proposal to increase regulatory requirements for rail transportation of crude oil and ethanol. Among other requirements, the proposed set of rules will improve existing tank car design and institute new operational controls for trains shipping hazardous flammable liquids.

Most recently on May 7 the FRA issued a Safety Advisory advising specifically that the legacy DOT 111 or CTC 111 cars not be used for Bakken oil “to the extent reasonably practicable.” A safer standard car design is already in the works. The new design is expected to be proposed by PHMSA by the end of the 2014 and finalized in late 2015. However, the general consensus at the Forum estimated the cost to retrofit the entire U.S. fleet at $3 billion, a hefty sum which would be further exacerbated by an increased number of tank cars used for transport due to heavier weight and thicker lining that would reduce liquid volume capacity per car.

NEW YORK PIONEERS STATE OVERSIGHT OF FLAMMABLE MATERIALS RAIL TRANSPORTATION SAFETY

New York has emerged as a forerunner in addressing concerns regarding the shipment of crude oil at a state level. This activity has been prompted by a proposed major expansion of Global Partners, LP’s rail-to-ship oil delivery terminal along the Hudson River in the Port of Albany, servicing Canadian Pacific shipments of Bakken crude oil. The transfer from rail to ship requires heating the crude oil, a process which entails additional risks apart from the rail shipment issues. The port area is in close proximity to residential areas and the involved rail lines run directly under the riverfront interstate highway network and the Dunn Memorial Bridge spanning the Hudson in downtown Albany. The volume of crude being shipped through has increased to the point that Albany is becoming a pricing point in the crude oil market.

Under the direction of Executive Order 125, New York on April 30, 2104 issued “Transporting Crude Oil in New York State: A Review of Incident Prevention and Response Capacity,” a comprehensive crude oil safety transportation report. The report was prepared jointly by the State Departments of Environmental Conservation (NYSDEC), Health and Transportation, the State Division of Homeland Security, and the New York State Energy Research and Developing Authority.

The report recognizes that much of the regulation of railroads is exclusively the jurisdiction of the federal government. It sets out eleven proposed actions at the federal level, eleven actions that New York is undertaking and four recommendations to the shippers and the railroads which New York contends are necessary to ensure safe transportation of crude oil. Governor Cuomo submitted the Report to President Obama with a request that the federal government take prompt action to regulate crude oil rail transportation and ensure adequate safety, emergency response, and preparedness measures are in place.

Implementing the Report with on the ground action, New York DOT completed a new round of tank car inspections at the end of April 2014 at rail yards across the upstate of New York. The inspection noted numerous issues and defects among the inspected 700 tank cars and 152 miles of track inspected. The NYSDEC has announced an air monitoring program for volatile organic compounds to be deployed in the Albany residential neighborhoods bordering the Global facility in the Port of Albany. Additionally, the NYSDEC, the U.S. Environmental Protection Agency (EPA), and the U.S. Coast Guard have partnered on several rail safety initiatives. These include reviewing and updating the NY/NJ Area Contingency Plan, working with the U.S. National Oceanic Atmospheric Administration (NOAA), prioritizing and developing Geographic Response Plans around NY, and increasing the coordination between the EPA and NYSDEC regarding spill prevention and storage facility inspection.

Not everyone is satisfied that New York is taking sufficient action. On May 6, 2014, EPA’s Region 2 office took issue with many aspects of the Clean Air Act permit modification proposed by the NYSDEC to be issued to Global Partners, LP for the Port of Albany facility. Among other points, EPA challenged the estimate that the release of volatile organic compounds would fall less than one-half ton below the forty ton annual threshold that would require the installation of lowest achievable emission controls. This viewpoint has been echoed by EarthJustice and Environmental Advocates, two environmental advocacy organizations active in New York.

HOW THE PLAYERS LINE UP

The NTSB Forum brought out the different viewpoints of the major players. The railroads, represented by the AAR, are pushing for new rail car standards to be rapidly implemented, but are not in full support of other measures being proposed by the FRA. The FRA is edging toward requiring improved rail car design, but at a pace that is unsatisfying to many participants and observers. As represented by the American Petroleum Institute with respect to oil and by the Renewable Fuels Association with respect to ethanol, the shippers are urging a more cautious approach be taken, and that a cost-benefit analysis be undertaken before imposing costly new rail car standards. This is because the shippers will bear the brunt of the cost of new car technology through increased freight charges. They point out that stronger cars are heavier cars, and thus raise capacity issues. Not all industry participants are following this approach, however. Global Partners, LP is trying to drive new rail car standards forward by announcing that the company will only transport crude oil in tank cars with improved design. The rail car industry is prepared to produce whatever technology is called for.

THE OUTLOOK

This is a fast moving situation with frequent developments and is garnering national attention. As testimony at the NTSB Forum made clear, there are three elements to the safety of shipping crude oil and ethanol by rail: (1) preventing derailments and collisions; (2) minimizing the risk of tank punctures in the event of accidents; and (3) minimizing fire and explosion risks should they occur. To address all three of these elements adequately and to tackle the serious safety issues facing the rail industry, it is clear that cooperation is vital from all agencies and organizations involved in the process.