Replacing or refitting rail tanks cars to meet new safety measures contemplated by U.S. regulators could cost Hess alone $140 million to replace 963 cars it ordered three years ago to move Bakken crude out of North Dakota, the shipper estimated in a filing to the U.S. Pipeline and Hazardous Materials Safety Administration.
In December 2010, Hess acquired the DOT-111 cars to deliver more than 50,000 barrels per day of Bakken crude from its Tioga, N.D., loading facility to various destinations.
It paid a 10 percent premium at the time, raising the cost of the cars to $90 million, to meet new safety specifications proposed by a task force of the American Association of Railroads.
In comments filed to an advance notice of proposed rulemaking by PHMSA, Hess said it could be faced with a $140 million bill to acquire heavier cars equipped with thick steel jackets.
That could translate into an extra $1.50 per barrel for crude transport costs because the heavier cars would have reduced capacity, resulting in higher loading and unloading costs.
Voluntary standard met
Hess and shippers who bought DOT-111 cars after October 2011 already measure up to a voluntary industry standard contained in an American Association of Railroads petition to PHMSA that includes protection for fittings on top of rail cars, pressure relief valves that close after being activated and a minimum thickness for steel shells.
PHMSA is now trying to decide whether to make those voluntary standards mandatory and require all existing cars to be refitted, even though the investigation of the Lac Megantic, Quebec, disaster has not yet pinpointed the design of the DOT-111 cars as a contributing factor in the accident.
The AAR has urged PHMSA to require retrofitting and to set an “aggressive phase-out schedule for the cars that cannot meet retrofit requirements.”
10-year transition recommended
The Railway Supply Institute has urged PHMSA to exempt all cars in service that comply with the 2011 voluntary standard, noting that 55,546 of those cars will be in service by 2015, representing an industry investment of at least $7 billion.
The RSI has recommended a 10-year transition period for rail car owners to comply with any new standards and the inclusion of pressure relief valves to protect the cars from overheating in the case of a fire.
Given the constraints on barge shipments and pipeline capacity, the RSI said any decline in rail shipments would result in about 252,000 additional long-haul trucking shipments per month, posing “substantial additional risk for transporting hazardous material.”
The American Petroleum Institute said in a filing that it supports retrofitting all existing tank cars to include a higher-capacity pressure relief valve, but argued that other safety measures would add weight and cost to cars without a significant increase in safety.
It called on PHMSA and Federal Railroad Administration to form a task force to assess the cost and benefits of retrofitting.
The Renewable Fuels Association said that rather than focusing exclusively on rail car design “a more prudent approach would be to invest in initiatives that address root causes (such as substandard track, switching failures, inspection errors, maintenance problems and lack of communication between train crews) and keep the railcars on the tracks.”
