Posted on 11/15/2013 1:02:15 PM PST by Rodamala
A major rail industry group is calling for updating or phasing out thousands of tank cars used to carry crude oil, as federal officials weigh new regulations on moving hazardous materials by rail.
The Association of American Railroads is urging U.S. regulators to require retrofits for roughly 72,000 older tank cars that haul flammable substances such as crude and ethanol, plus minor upgrades for an additional 14,000 newer cars. The AAR also recommends an "aggressive phase-out" of cars that can't meet retrofit requirements, the group said yesterday in comments filed with the Pipeline and Hazardous Materials Safety Administration.
PHMSA, an arm of the U.S. Department of Transportation, is seeking public input for long-awaited updates to its tank car regulations. Two recent oil train explosions -- one in Quebec this summer and another last week in Alabama -- have heightened public scrutiny of the fast-growing crude-by-rail market.
"We believe it's time for a thorough review of the U.S. tank car fleet that moves flammable liquids, particularly considering the recent increase in crude oil traffic," said Edward Hamberger, president and CEO of AAR, which represents the nation's largest freight railways, including BNSF Railway Co. and CSX Corp.
Some analysts were surprised by the AAR's support for retrofits, which the group has been less keen on in the past based on cost estimates exceeding $1 billion.
"It's not something you typically see from them," said Michael Baudendistel, a transportation equipment analyst at Stifel Nicolaus.
Baudendistel pointed out that the AAR's proposal didn't come with a strict timeline, and any financial fallout will hinge on PHMSA's final rulemaking.
"There might be a phase-in period over a number of years, but it does seem like there's going to be some regulations," he said. "I think most of the tank car leasing companies and tank car builders are expecting that."
A spokeswoman for the AAR confirmed that the group is leaving cost and timeline details up to PHMSA, based on expected input from shippers and other industry groups such as the Railway Supply Institute. PHMSA recently extended the public comment period for its proposed tank car rulemaking until Dec. 5 (EnergyWire, Nov. 5).
The AAR recommendations are still likely to rankle with the nation's biggest tank car leasing companies, including GATX Corp. and General Electric Railcar Services Corp.
That's because lessors and tank car manufacturers are expected to bear the initial costs from any tougher standards. By contrast, freight railways rarely own the cars moving on their tracks, so they wouldn't have to devote much capital to upgrading tank cars.
Ultimately, shippers will absorb the expenses brought by new regulations, potentially affecting railways' competitiveness in the oil sector.
"I think there will be some extra cost to the companies that own the tank cars," Baudendistel said. "Economically, it would be passed on to the shippers, and increase the logistic costs of moving crude by rail."
Representatives from GATX and GE Railcar were not immediately available to comment. A spokeswoman for Trinity Industries Inc., a Dallas-based manufacturer that also maintains a substantial tank car fleet, did not return a request for comment.
New rules, new opportunities
New rules could also take tank cars off the tracks in a market still racing to meet demand. Most major rail car manufacturers, including Trinity, American Railcar Industries Inc. and Greenbrier Cos. Inc., have backlogs of tank car orders stretching to 2015 or beyond (EnergyWire, July 11).
"If you put in regulations that take supply of cars off the market, you're absolutely going to see an increase in prices," said Jonathan Kletzel, U.S. transportation and logistics leader for consultancy PricewaterhouseCoopers, in an interview yesterday. "I think trucking has a short opportunity during this window where rail can't keep up to potentially pick up some market share."
Kletzel, who co-authored a new report analyzing shale energy's impact on U.S. logistics companies, emphasized that trucking can offer only a quick fix as railways retain a major cost advantage.
Pipelines typically offer the cheapest way to move crude over long distances, but infrastructure has failed to keep up with booming production in places such as North Dakota's Bakken Shale and other far-flung oil patches.
Slow pipeline buildout has made rail an appealing -- and in many cases the only -- option for oil producers hoping to get their crude to market. Improved extraction techniques such as hydraulic fracturing and horizontal drilling have also driven growth in crude-by-rail shipments. The AAR projects major railroads will carry 400,000 carloads of crude this year, compared to 4,700 carloads in 2006.
The association emphasized rail's improving safety record in recent years, despite the July 6 oil train derailment and explosion that claimed 47 lives in Lac-Mégantic, Quebec.
Last Friday, another oil train derailed and caught fire in Alabama, although no one was hurt.
Investigations into the accidents are ongoing, and it's not clear if tougher cars would have made a difference in either case. However, the U.S. National Transportation Safety Board and its Canadian counterpart have long pressed regulators to tighten standards for the puncture-prone DOT-111 tank cars caught up in both crashes.
In 2011, the AAR voluntarily adopted tighter specifications for new DOT-111s in response to safety concerns. But back then, the group stopped short of recommending retrofits for older models.
Now the AAR is calling for a number of upgrades to hazmat DOT-111s, including installing high-flow-capacity relief valves.
Anthony Hatch, principal of ABH Consulting, a New York-based freight transportation research firm, said the AAR may have had some legal basis for issuing its latest recommendations in addition to the stated priority of improving safety.
Hatch pointed out that railroads have "an overly large amount of skin in the game" in their financial liability for hazmat derailments, given that they're legally obligated to haul materials far more volatile than crude on a regular basis.
He said he didn't think AAR's proposal would disrupt the market, barring an unlikely order from PHMSA to immediately retrofit all older DOT-111s.
"Then you would see [oil] market share shift back to pipelines, waterborne transportation -- or not move at all," he said. "That would be hurtful to all concerned, so hopefully, they [PHMSA] do this in a measured way."
Especially don't do both at the same time.
Because we’ve been having so many problems with tank cars.
Let me guess... they want more railroad cars to carry windmills, windmill parts, electric cars and solar panels.
“Let me guess... they want more railroad cars to carry windmills, windmill parts, electric cars and solar panels. “
It’s not immediately obvious to the casual observer but the general rule on groups wanting something is: “Follow the money.” Where it is and where’s going isn’t obvious, but you can bet this “group” will benefit.
There have been problems.
IMHO, this is a smart move. It’s an attempt at getting out in front of the inevitable protests, and rail-line blockades that will soon equal the protests over pipelines. The entire rail industry would be hurt, if even one substandard operator has a serious spill.
Of course, no matter how safe rail transport is (and right now it’s not as safe as pipelines); there will still be protests. And, also of course, I’m not oblivious to the fact that this is being driven by self-interest. If low-cost competitors can be driven out of business by these new standards, all the better for the remaining rail companies.
Let them build the pipeline and they won’t need rail cars.
The group represents the people who pull the cars, not the people that own the cars. The railroads pay for accidents but don’t have to pay for upgrading the cars, it is definitely in their financial interest to force the car owners to upgrade the cars. No mystery here.
It’s like the insurance company making you put a new roof on your house to continue coverage, they don’t pay for it and it reduces their risk, a pure win for them.
This is an immensely un smart move. Physics says rail will never be safer than pipeline transport.
The rail industry has consolidated down to 4 American class 1 railroads so there is little to fear from smaller competitors.
The US government HSS already saddled the industry with a multi billion dollar, technically unachievable requirement for positive train control.
It sucks to live under an ever expanding government that thinks it can eliminate all risk.
There. After wandering around for a bit, you finally landed on it. I think that's what's called [in the parlance] a buried lede.
Railroads have an exemplary safety record. Unbelievably safe. Pipelines are safer just because there are fewer moving parts. It would be even safer not to have any transportation of products, returning to the middle ages.
Rather than applaud the Railroads for acquiescing to yet another hair brained, counter-productive diktat, I want to slow the government from forcing a multibillion dollar investment in equipment when the root cause was human misbehavior and misjudgment.
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