Bakken crude producers and midstream transportation companies already experience transportation woes related to inadequate pipeline infrastructure, railroad capacity, tank car supply, rail accidents, and new regulations. But they also increasingly face a new problem: lawsuits. In September alone, the Sierra Club, one of the largest environmental organizations in the United States, filed two lawsuits challenging different aspects of crude-by-rail transportation. First, on the national level, the Sierra Club seeks to stop the transportation of crude oil in allegedly outdated and unsafe tank cars. And second, at the state level, the Sierra Club accuses a local agency of illegally permitting a rail-to-truck facility.
The first lawsuit challenges the continued use of older DOT-111 tank cars, the tank car commonly used to transport Bakken crude oil.[i] On July 15, 2014, the Sierra Club and ForestEthics, through Earth Justice (collectively “petitioners”), petitioned the United States Department of Transportation (“DOT”), asking for an “emergency order prohibiting the shipment of Bakken crude oil in unsafe tank cars” (“Rail Car Petition”).[ii] The petitioners allege that shipping crude oil in these unsafe “legacy DOT-111” tank cars poses an “imminent hazard” requiring the immediate cessation of their use.[iii]Roughly a month after receiving the Rail Car Petition, the DOT, through the Pipeline and Hazardous Materials Administration and the Federal Railroad Administration, issued a proposed rule that addresses many of these concerns.[iv]
Although the proposed rule addresses many of the DOT-111 safety concerns, the petitioners believe the rulemaking process will take too long.[v] On September 11, 2014, the environmental groups filed suit in the United States Court of Appeals for the Ninth Circuit.[vi] The petitioners ask the court to order the DOT to respond to the Rail Car Petition.[vii] As its legal basis, the environmental groups argue that under the Administrative Procedure Act the DOT has taken an unreasonable amount of time to respond to the Rail Car Petition.[viii] The Ninth Circuit denied the petitioners’ request for an expedited decision and ordered the DOT to respond.[ix] The court specifically directed the DOT to propose a timeline for its response to the Rail Car Petition.[x] According to the briefing schedule, the Ninth Circuit’s ruling will likely come in early 2015.
The second lawsuit targets a permit to transfer crude oil from trains to trucks issued to Inter-State Oil Company, a fuel and lubricants distributor located outside of Sacramento, California.[xi] In this suit, the Sierra Club alleges that the Sacramento Metropolitan Air Quality Management District (“District”) illegally authorized Inter-State’s permit without the requisite public notice and comment in violation of the California Environmental Quality Act (“CEQA”). The Sierra Club asks that the court revoke Inter-State’s permit and declare that the District violated CEQA. This is not the first legal challenge of this nature, however. A San Francisco Superior Court Judge recently dismissed a similar suit against a Kinder Morgan facility outside of Richmond, California, on timeliness grounds.[xii]
Whatever the potential merits of these suits, one theme rings clear: Players in the Bakken will continue to spend time and money overcoming logistical as well as legal obstacles transporting their product to market. On the national level, the DOT will require more stringent mechanical and safety standards for tank cars carrying crude oil. The only uncertainty is when these more stringent standards will be required. If the environmental groups’ recent lawsuits in California indicate a trend, the groups may increasingly target non-railroad midstream and crude end-users under state law.[xiii]An increasing amount of litigation, whether successful or not, could stall new infrastructure development, eventually impacting the demand for Bakken crude.