Canadian oil sands crude is the X factor in crude-by-rail rule

E&E Report | August 13, 2014 | Column by Elana Schor

The Department of Transportation's new proposal to phase out aging tank cars involved in a spate of recent oil train derailments assumes that 23,000 of the older models would transition to carrying Canadian oil sands fuel, a projection that could upend the debate over whether rejecting the Keystone XL pipeline project would push more heavy crude onto the tracks.

DOT's oil sands vision for older tank cars, outlined in an analysis published alongside its July 23 proposed rule, rests on the addition of thermal jackets and insulation to nearly 7,800 cars and the conversion of more than 15,000 cars to carry Canadian crude without retrofits. What the analysis leaves unaddressed, raising concerns among environmentalists, is the safety risks of filling spill-prone tank cars with crude that is less explosive but potentially more challenging to clean up.

"The way they're keeping costs low is by moving those cars from carrying Bakken crude to carrying tar sands crude, and you're just moving the risk around rather than eliminating it," Greenpeace Canada climate campaigner Keith Stewart said in an interview.

Given DOT's acknowledgement that an oil sands crude spill "may be particularly damaging to the environment," Stewart added, transporting that heavy fuel in tank cars amounts to "reducing the risk of explosion, hopefully, but increasing the risk to water."

The DOT regulatory analysis also includes what Natural Resources Defense Council attorney Anthony Swift, another oil train specialist, called "a potentially pretty large oversight": the treatment of oil sands crude as "a combustible rather than flammable liquid" under U.S. hazardous materials rules, when those same rules also state that Canadian bitumen becomes classified as flammable when diluted with lighter hydrocarbons.

Regulators assumed in their proposal that older versions of the so-called DOT-111 and CPC-1232 tank cars would shift over to carrying oil sands crude so long as the models featured appropriate thermal protection. But if that assumption only covers less volatile raw bitumen -- as suggested by DOT's discussion of oil sands crude as a combustible instead of flammable material -- additional retrofits would be needed to carry the viscous fuel, which can appear almost solid without additional heating.

"I don't see how you're going to heat [raw bitumen] in a tank car that doesn't have heating coils," said energy economics consultant Ian Goodman, who has worked for electric utilities and groups opposing KXL. DOT's proposal, he noted, does not consider the cost of adding heating equipment to its retrofits of the older cars at issue.

'How is industry going to respond?'

The DOT analysis seeks comment on the feasibility of shifting over thousands of DOT-111 and CPC-1232 tank cars into oil sands service without specifying whether the fuel it refers to is raw bitumen. But to the degree that Canadian producers have invested in ramping up oil sands train service, the fuel is largely traveling on dedicated unit trains in diluted, flammable form as opposed to running the rails raw.

Cenovus Energy Inc., for example, began running its first diluted bitumen unit train during the second quarter of this year and plans to ship 30,000 barrels per day of the flammable fuel by rail at year's end.

If oil sands producers turned to rail to alleviate pipeline bottlenecks for diluted bitumen, a scenario the Obama administration envisioned in its January environmental impact statement on KXL, they could be forced to stop using the oldest DOT-111 models as soon as 2018 under the new proposed rule. A spokesman for the Pipeline and Hazardous Materials Safety Administration (PHMSA) said yesterday that diluted bitumen would qualify as a flammable Class 3 material in Packing Groups II or III under current regulations.

"The question is, how is industry going to respond?" Swift, of NRDC, said of the DOT proposal's assumption that more than 20,000 tank cars could begin carrying bitumen. Any pushback, he added, would require "pointing out some of the obstacles of moving tar sands by rail."

Any admission of those obstacles stands to bolster conservationists' arguments that rail is not prepared to meet the capacity needs of an oil sands industry facing pipeline constraints in the absence of KXL. Greens have worked for months to discredit the State Department's prediction that oil sands by train is poised for a boom of its own, a linchpin of its finding that KXL is unlikely to significantly harm the environment (EnergyWire, Feb. 11).

Pushback to DOT's statement about older tank cars carrying oil sands crude also runs the risk of adding to the rule, Goodman said. "There's a tension because that assumption makes the rule appear more cost-effective and less disruptive to the capacity to move crude by rail."

However, the DOT rule could yet see more modifications in its treatment of oil sands fuel before a final version is released later this year or in early 2015. At least one oil-by-rail titan has suggested that the less volatile nature of Canadian heavy crude could permit its continued shipment in lightly retrofitted versions of the older tank cars that sparked controversy following the fatal derailment of a Bakken oil train in Lac-Mégantic, Quebec.

The Warren Buffett-controlled BNSF Railway told PHMSA officials in March that "a slight modification" to the DOT-111 and CPC-1232 cars could allow the continued transportation of oil sands crude, asphalt and diesel, according to notes from that meeting that regulators publicly released alongside their new safety proposal.

Twitter: @eschor | Email: [email protected]

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