Oil-by-rail operators press White House on need for speed

Energy Wire | June 13, 2014 | Column by Blake Sobczak

Several U.S. railroads are pushing regulators to prevent speed limits from putting the brakes on the North American oil-by-rail boom, according to White House records and a top industry group.

Freight giants BNSF Railway Co., CSX Corp., Union Pacific Railway Corp. and short-line holding company Genesee & Wyoming Inc. metTuesday with officials from the Office of Information and Regulatory Affairs to warn of dire economic consequences from oil train speed restrictions.

OIRA, part of the White House's Office of Management and Budget, is currently reviewing oil-by-rail rulemaking proposed by the Department of Transportation. DOT's Pipeline and Hazardous Materials Safety Administration has declined to disclose details about the pending rules, but Transportation Secretary Anthony Foxx has said it will consider speed limits for crude trains.

In February, Foxx reached an agreement with the nation's biggest freight railroads to adjust oil-by-rail operating practices in the wake of recent derailments and fires. Part of the deal included curbing oil trains' speed to 40 mph through 46 "high-threat urban areas" starting July 1.

The arrangement applies only to "key trains" with 20 or more cars with at least one older-model DOT-111 tank car in the mix. DOT-111s have faced criticism for their puncture-prone design and are infamous for exploding in a derailment last July in Lac-Mégantic, Quebec, that claimed 47 lives.

Since then, Canada's top oil-by-rail regulator Transport Canada issued an emergency order capping oil train speeds at 50 mph. U.S. regulations bar trains hauling poisonous-by-inhalation materials such as chlorine gas from traveling faster than that, although the limit doesn't currently apply to oil trains.

Nevertheless, a month after the Lac-Mégantic disaster, the U.S. rail industry voluntarily capped oil train speeds at 50 mph under a set of best practices laid out by the Association of American Railroads.

AAR, which represents freight giants such as BNSF as well as major passenger rail companies like Amtrak, requested Tuesday's OIRA meeting alongside the American Short Line & Regional Railroad Association, another influential trade group.

AAR President and CEO Ed Hamberger said in an emailed statement yesterday that when it comes to speed limits, the trade group "would be greatly disappointed if the proposed rulemaking goes beyond what was reached in good faith with [Foxx] in that [Feb. 21] agreement."

"In light of the Secretary's statements," Hamberger said, "it was imperative that [the Office of Management and Budget] be made aware of the significantly negative consequences lower crude train speed limits would have on the other 98 percent of rail freight customers and passenger railroads."

Hamberger said that a 10 mph reduction from the current 40 mph limit through major cities would slash overall freight rail capacity by 10 percent, a "dramatic reduction" that he said would put more pressure on the nation's highways as shippers switched to trucks.

Slides presented at the OIRA meeting highlighted a key BNSF line that runs from Chicago to Washington state, passing through North Dakota's oil-rich Bakken shale.

Amtrak trains share the tracks on part of that network, where passengers often saw hours-long delays this winter due to harsh conditions and an unprecendent surge in oil train traffic.

In a credit update last week, analysts at Standard & Poor's said slower speeds are one recent outcome of heightened regulatory scrutiny on North American railroads. But while the ratings service noted that regulations could raise crude-by-rail costs, it said "we expect the railroads to pass a significant portion of these costs on to shippers."

Still, a significantly slower speed limit could hurt two factors seen as key to the oil-by-rail business model: speed and flexibility. It can take more than twice as long for piped oil to travel from North Dakota to coastal refineries, if the infrastructure exists to get crude there in the first place. Railroads' outflow capacity in the Bakken Shale play, at 965,000 barrels per day as of late last year, is nearly double the pipeline capacity in the region, the Energy Information Administration noted in a report this week.

In the slide show presented to railroad officials and representatives from the OMB, BNSF claimed speed restrictions could force its crude oil customers to add 11,280 tank cars to their fleets at a cost of $1.5 billion, due to the increased cycle time for each trip.

OIRA is expected to finish its review of proposed oil train rules in July, when railroads will find out whether regulators really aim to slow oil trains below 40 mph. Meanwhile, oil companies and railroads will likely continue to lobby the influential office over pending rules (EnergyWire, June 10).


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