Train Accidents Bring New Scrutiny, But Fixes Likely Slow

The train derailment in Lynchburg, Virginia that spilled 30,000 gallons of oil into the James River earlier this month is the latest in a string of accidents that have increased scrutiny on the practice of shipping oil by rail.

The Department of Transportation sent the White House a package of rules regulating the transport of oil within hours of the accident, where they are still awaiting approval. That puts another tough political calculation in the White House’s court when it comes to balancing the need to transport oil and environmental safety. And with the railroads just coming out of a historically tough winter and facing some unprecedented problems, it won’t be an easy and fast fix. The oil produced from fracking needs to go somewhere, and it likely won’t wait for an entire fleet of rail cars to get updated.

Fracking is the blessing that has let the Obama administration push some of the most aggressive environmental standards in decades. But it is also the curse that has required some of the toughest political calls the White House and Democrats have had to make in recent years. Take the Keystone XL pipeline – an infrastructure development that is arguably needed to move the spoils of the fracking boom to the refineries that can process it, but also anathema to environmental advocates that make up the left side of the Democratic base.

Rail transport of crude oil was a good Option B to fill the gap in infrastructure. It was by no means a favorite of the environmental crowd, but it never attracted the negative attention that Keystone did.

That is, until now. Oil-by-rail is getting national media coverage thanks to the recent accidents, making it less an Option B to pipelines and more like a problematic cousin, requiring the administration to once again balance the needs of a growing industry with their commitment to environmental safety.

“The issue of increasing use of rail for oil is being driven substantially by a number of these new shale plays and new oil production,” Federal Energy Regulatory Commissioner Tony Clark said in an interview. Clark, who previously served as the chairman of a North Dakota utility, said oil production expanded from 150,000 barrels a year in North Dakota ten years ago to about a million barrels a year. And the infrastructure simply doesn’t exist to move that oil out.

“More and more, they started using the rail cars for two reasons — one they were getting curtailed on pipelines. And two, there are a number of refineries on the East and West Coast that tend to be older, and will pay a fairly large premium for Bakken crude,” because it is easier for them to process, Clark said.

Add the historically bad weather of this past winter into this mix, and you had what some are calling an unprecedented slowdown in rail traffic over the past few months. That led the federal government to issue an order that the railroads regularly update the government on status of shipments of fertilizer this spring.

The challenges on the rail over the past few months prompted the Western Coal Traffic Alliance, a group of utilities that rely on coal shipments delivered by train, to ask the Surface Transportation Board to hold a hearing on slow rail deliveries. At the hearing last month, BNSF Railway said it was responsible for more than 50 percent of the increased rail traffic in 2013 and showed that a surge in crude traffic in October 2013 through the end of the year was in part responsible for slowdowns.

So what does this mean? Without pipelines that can move all this oil from the Bakken, the crude-by-rail traffic must keep pace if the oil is going to get anywhere.

“Safety has to be the priority, but there’s a realization that there’s a lot of pressure on the railroad,” Clark said. “They are shipping all of these products…but at the same time trying to retrofit [the tanks]…it’s a challenge for them.”

When asked if the federal government had to take into account the crush of traffic on the railroads into consideration when writing the package of regulations now at the White House, a spokesman for the Department of Transportation’s Pipeline and Hazardous Materials Safety Administration said the agency could not comment on the enhanced tank car standards during the rulemaking process. They also issued an order requiring railroads tell local emergency responders when oil is moving through their borders, so they can be prepared in case there is an accident.

According to the American Association of Railroads, there are 335,000 tank cars in use, and 228,000 of those are the older “DOT-111” cars that safety advocates have called for banning in crude transport. Approximately half of those older cars are currently used to transport hazardous materials, according to the AAR, which gives you a scope of the challenges the industry would face in swapping these cars out or making significant updates.

“They would have to grandfather a lot of cars…at least for crude oil,” Peter Pfohl, an attorney who specializes in transportation and works with the Western Coal Traffic Alliance, said in an interview. “It’s the agency that has delayed everything…but the agency has limited resources and expertise itself. It clearly hasn’t been a real priority until accidents.”

Even with the new rules now under White House review, it will take time for tougher rail regulations to actually take effect. And the fracking oil boom won’t be slowing down to wait.

Morning Consult