Reacting to a spate of North American train derailments, fires and explosions over recent months, the American Association of Railroads has urged federal regulators to tighten safety requirements for new rail cars carrying crude oil and ethanol and require the retrofitting of the entire fleet.
In a filing to the U.S. Pipeline and Hazardous Materials Safety Administration, the organization representing U.S. freight rail operators called for the phasing out of most old tank cars and modifications to new ones — a proposal that carries an estimated cost of $3 billion for the tank car industry.
The proposals go well beyond a petition filed in March 2011 by the AAR on behalf of a coalition of rail interests, including rail car owners, manufacturers and shippers of hazardous materials.
But that petition, while recommending more stringent safety standards for new cars, did not suggest retrofitting the existing fleet, citing estimates that the cost could run to $1 billion.
ARR: Required after July explosion
However, the AAR, making a case for itself and short-line railroads, said the July explosion at Lac-Megantic, Quebec, that claimed 47 lives, has made it necessary to retrofit the existing fleet of 78,000 older cars and require even higher standards for 14,000 newer models.
“Surely it is not in the nation’s interest to thwart rising transport of domestic energy supplies,” the AAR’s letter said.
“At the same time, railroads, their customers and suppliers, and the federal government must take precautions to avoid another devastating accident.”
AAR President Edward Hamberger said the time has come “for a thorough review of the U.S. tank car fleet that moves flammable liquids, particularly considering the recent increase in crude oil traffic.”
He said if the problem was tackled properly it would not cause a “dislocation” to crude shipments because there is “plenty of crude to go around.”
Shipments up 44 percent
In the latest quarter, U.S. shipments rose 44 percent from a year earlier to 93,312 carloads, equivalent to about 740,000 barrels per day, or 10 percent of U.S. crude production — a godsend to railroads that have experienced a sharp decline in coal shipments to power generators.
But analysts warn that the AAR proposal could severely punish the tank car sector and erode the economic benefits of shipping crude by rail, especially given that a number of DOT-111 cars were upgraded in 2011 to meet stricter guidelines, and are now being recommended for steel jackets, thermal protection and pressure relief valves to protect cars trapped in a fire.
The AAR is also suggesting an “aggressive phase-out of cars that cannot meet retrofit requirements.”
Toby Kolstad, an analyst at freight car consultancy Rail Theory Forecasts in Portland, Ore., said the industry could not withstand such a “blow.”
However, Samir Kayande, an analyst at ITG Investment Research, argued that although there would be a short-term impact on cars during a retrofitting, the burden “doesn’t strike me as meaningful.”
Disagreements on cost
The Rail Supply Institute told an industry presentation earlier this year that the costs of meeting AAR proposals could exceed $40,000 per car — an estimate it expects to update soon.
Growth Energy, a group representing the ethanol industry, cited a Railway Safety Institute estimate that retrofitting older DOT-111 cars would cost about $63,000 and did not take into account the additional tank cars that would need to be placed in service to ensure the consistent availability of fuel deliveries while cars destined to retrofit waited for modifications at a limited number of certified shops.
Growth Energy President Tom Buls said current tank cars remains “safe and effective as shown in (their) overwhelming success rate.”
“There has not been enough or conclusive data to show that extensive and costly changes to the existing rail car fleet would significantly improve rail safety transportation of ethanol,” he said. In 2012, 61 percent of the 13.3 billion gallons of ethanol produced in the U.S. was shipped by rail, Growth Energy said.
Refiner Valero, which owns about 8,000 rail cars, most of them purchased in the past 18 months, said its fleet meets voluntary standards adopted by the AAR in 2011 and would not comment on the call for retrofits to existing cars until it had a chance to study the report.
Justin Kringstad, director of the North Dakota Pipeline Authority, told a news conference Nov. 15 he was not aware of any negative impact on rail shipments from the Williston Basin stemming from the high-profile rail accidents involving crude.
He said Williston rail volumes are consistent with what would be expected given the current crude oil pricing differentials and the advantage to shipping Bakken crude to coastal markets.
From a safety standpoint, railroads are working with federal regulators to “understand if there is anything that can be done to make it even safer,” Kringstad said.
