The Trains They Are A Changin’ – Will New Tank Car Standards Stifle Crude-by-Rail?

The future pace of crude-by-rail growth in North America may depend on rulings expected by the end of 2014 from the US Department of Transport (DOT) concerning rail tank car designs mandated to carry crude oil safely. The costs of replacing or retrofitting the existing tank car fleet to meet such new standards - designed to reduce the risks associated with recent high profile accidents - will pass to rail car lessors and crude shippers who will end up paying higher lease rates. Today in the first of a two part series we look at how the rail industry can comply with new tank car standards.

We have previously discussed the rail industry tank car safety debate following a series of tragic accidents involving crude carrying trains including the fatal derailment of a train at Lac-Mégentic in Quebec a year ago in July 2013 (see Could New Tank Car Rules Derail the Bakken Crude Boom?). There are a number of rail safety regulatory bodies.  In the US, the DOT Pipeline and Hazardous Materials Safety Administration (PHMSA) establishes safety regulations relating to crude-by-rail transportation. In Canada, Transport Canada performs a similar function. In addition, the Association of American Railroads (AAR) Tank Car Committee (TCC) is a key participant in the setting of industry standards regarding the design and construction of tank cars.

The rail industry had already moved toward more stringent requirements for rail tank car design before the recent accidents. In 2011, the TCC asked PHMSA to adopt upgraded design requirements for new tank cars carrying hazardous materials such as crude oil (PHMSA Petition – 1577). These upgrades, known by the design standard CPC-1232, include thicker, more puncture resistant tanks, thicker walls at both ends of the tanks, and more protection for the fittings and valves on top of the rail cars. The new requirements would replace the majority of existing rail tank cars used to transport light sweet crude - built to a design known as DOT 111A. Rail tank cars constructed with insulation and heated coils and designed to carry heavy crude are already compliant with the new standards and not expected to be subject to new design requirements. (That means shippers of heavy Canadian oil sands bitumen crude blended for rail transport with reduced diluent – known as railbit or purebit – should  not be impacted – see The Road to Market for Canadian Bitumen Crude). On January 11, 2014 the Canadian Government published rules that will go into effect in July, setting a new Canadian rail tank car standard called TP14877, based on the US PHMSA Petition – P1577. On May 7, 2014 PHMSA issued Safety Advisory 2014-01 strongly urging the phase-out of the older DOT-111 tank cars—but it did not require this by any certain date. On April 23, 2014 Canada ordered that older tank cars be phased out or retrofitted by May 2017 and that the least crash-resistant DOT-111 tank cars be removed from dangerous goods service within 30 days. The US DOT is expected to make a firm ruling on new tank car standards by the end of 2014 that could also require the retirement or retrofitting of DOT-111 tank cars within a limited timeframe. The AAR tank car committee has suggested that the DOT could decide on a safer design than the CPC-1232 by requiring thicker steel walls on all new tank cars.