Crude by Rail Declared 'Imminent Hazard' by Federal Regulators

"Federal regulators issued emergency rules Tuesday (Feb. 25) requiring extensive tests on crude oil moving by rail, concluding the system had become 'an imminent hazard to public health and safety and the environment'," write Laura Stevens and Russell Gold.

The order will require companies to test each batch of crude for an array of characteristics, from the temperature at which it boils to the percentage of flammable gases trapped in the oil and the vapor pressure, which is created when crude emits gases that can build up inside railcars.

While the order will cover all domestic crude, it is aimed at shipments from the Bakken Shale formation in North Dakota, South Dakota and Montana. "Bakken crude is more volatile than other oils and is more likely to emit flammable gases, as The Wall Street Journal reported earlier this week," write Stevens and Gold.

The effect on tanker cars will mean that "1,100 tank cars, known as AAR-211s, or about 3% of the total crude-oil fleet" will no longer be able to transport crude."

Stevens and Gold put the exponential growth of crude-by-rail (CBR) in terms that might even astound knowledgeable observers. "In 2008, a train of 100 tankers full of crude departed a terminal in North Dakota once every four days, according to rail-industry statistics. By 2013, a unit train was departing every 2 1/2 hours."

Complicating the matter of regulating CBR are the numerous stakeholders. While the railroads have already committed to additional measures as we noted Monday (on top of voluntary measures), the energy companies shipping the oil appear to be less than forthcoming.

The American Petroleum Institute, which has been representing the energy industry in its negotiations with the government, didn't respond to requests for comment. The trade association hadn't yet provided data that the DOT had requested in order to reach a voluntary agreement.

"The testing requirement goes into effect immediately with a stiff penalty for noncompliance," write Gold and Stevens.

"Any time the government is talking about $175,000 per incident per day in fines, they're pretty serious," says Kevin Book, an energy analyst at ClearView Energy Partners LLC.

The ten-page text of the safety order can be found in the Washington Examiner's article and in an attachment on Federal Railroad Administrator Joseph C. Szabo's testimony, "Oversight of Passenger and Freight Rail Safety" at the Subcommittee on Railroads, Pipelines, and Hazardous Materials, Committee on Transportation and Infrastructure, U.S. House of Representatives on Feb. 26.