Transporting Crude Oil by Rail: State and Federal Action

Daniel Shea, Kristy Hartman and Sijia Qiu 10/30/2015

Overview

crude oil transport train imageThe United States is producing more oil than it has in 30 years, and extraction companies are increasingly relying on railroads to deliver these products to refineries. Recent technological advances such as hydraulic fracturing and horizontal drilling are driving the increase in oil and natural gas extraction by unlocking access to resources in Canada and the U.S. that were previously considered too costly to develop. In 2014, the U.S. became the No. 1 producer of oil in the world—overtaking Saudi Arabia and Russia—and that upward trend has continued into 2015. While the U.S. produced an average of 8.7 million barrels of crude oil per day in 2014, during the first six months of 2015 that number rose to an average of more than 9.4 billion barrels per day, according to the U.S. Energy Information Administration. The U.S. hasn’t extracted that volume of crude since the early 1970s.

Leading the way are Texas and North Dakota, which combined account for almost half of domestic production. In some cases, production levels have reached pipeline capacity, forcing producers to identify alternative transportation methods. Many have turned to the railways, which have experienced incredible growth in crude oil transport. In fact, the number of carloads carrying oil in 2014 rose by more than 5,000 percent when compared with the numbers in 2008, according to the Association of American Railroads (AAR).

North Dakota’s Bakken region accounts for much of this growth, with more than half of its production—around 700,000 barrels per day in early 2015—moving out of the region on rail. That crude oil is moved to refineries predominantly on the East and West Coasts, where it is processed into useful petroleum products like heating oil, diesel fuel or gasoline.

According to the U.S. Department of Transportation (DOT), just 2.6 percent of petroleum products were transported by rail in 2009. Now, approximately 11 percent of these products are carried on Class I railroads, according to AAR. Although oil still makes up less than 2 percent of total rail freight, the volume of oil transported by rail has grown exponentially. Specifically, it’s the difference between 9,344 carloads terminated on U.S. Class I railroads in 2008, compared with 540,383 carloads in 2014.

Despite the fact that almost all of these carloads reach their destination without accidents, several high-profile incidents have brought the issue into the national spotlight and led some to call for greater rail safety standards for crude oil transports. In 2013, a derailment and explosion killed 47 people and spilled 1.5 million gallons of crude oil in Lac M├ęgantic, Quebec. An analysis of federal data from DOT’s Pipeline and Hazardous Materials Safety Administration (PHMSA) estimated that 1.15 million gallons of crude oil spilled from rail cars in the U.S. in 2013. The topic came to the forefront again in early 2015 after several derailments and spills occurred within a matter of weeks. However, railroads are carrying a much greater volume of fuel than in preceding decades. According to AAR, railroads carried over 11.5 billion gallons of fuel in 2013, and 99.99 percent of carloads reached their destination without a release caused by an accident. Overall rail safety and accident prevention has also improved dramatically in recent years. Rail accidents are down nearly 85 percent since 1980, and around 25 percent since 2000, according to Federal Railroad Administration data. Similarly, the number of hazardous materials spills has fallen by almost 60 percent since 2000—and this at a time when the number of hazmat cars has risen by nearly 15 percent.

Railroad Classes

About 570 freight railroads operate in the U.S., according to the AAR. These railroads are classified into categories primarily based on operating revenue, which is adjusted annually for inflation through regulations outlined by the Surface Transportation Board. Class I railroads are those having annual operating revenues of more than $467 million as of 2013. There are two Canadian railroads and two Mexican railroads that have enough operating revenue to qualify them as Class I. There are currently seven Class I railroads operating 94,300 miles of road in the U.S. This accounts for 68 percent of freight rail mileage and 94 percent of revenue. Non-Class I railroads—more commonly known as regional or short line railroads—vary in size from small operations carrying a few loads per month to much larger, multi-state operations. Although crude oil transported by rail primarily occurs on Class I railroads, regional and short line railroads can also be used when moving crude oil shorter distances and as a way to connect to the larger railroad system.

Federal Action

The Federal Railroad Administration (FRA), one of 10 agencies under the DOT, has primary jurisdiction over railroad safety, covering the safety of track, grade crossings, rail equipment, operating practices, and movement of hazardous materials (hazmat). DOT’s Pipeline and Hazardous Materials Safety Administration (PHMSA) and the U.S. Department of Homeland Security’s Transportation Security Administration (TSA) issue safety standards for railways. The National Transportation Safety Board (NTSB), an independent federal agency, is responsible for making recommendations to prevent future incidents. Unlike the FRA, the NTSB has no regulatory authority although the FRA often agrees with the recommendations provided by the NTSB. In an effort to improve safety and reduce the potential for rail spills, government agencies in the U.S. and Canada have adopted additional safety standards and issued new regulations for crude oil railcars. The U.S. Department of Transportation (DOT), for instance, issued an emergency order in May 2014 that requires railroad operators to notify local emergency responders whenever oil shipments travel through their states. Canada has also announced that it will phase out the use of older rail cars used to transport oil by May 2017.

In May 2015, the DOT announced a final rule to strengthen safety standards for transportation of flammable liquids by rail. The rule was developed by PHMSA and FRA, in coordination with Canada. The rule establishes a variety of new standards, including: enhanced tank car standards, new braking standards, new testing and sampling requirements to determine product stability, and new operational protocols, such as routing requirements, speed restrictions and informing local agencies.

Timeline of Federal Agency Efforts to Address Rail Safety Concerns

Date

Summary

5/28/2015

DOT announces that the May 2014 Emergency Order regarding emergency response notifications for shipments of petroleum crude oil by rail will remain in full force and effect until further notice while the agency considers options for codifying the May 2014 disclosure requirement on a permanent basis.

5/1/2015

DOT announces Final Rule to strengthen the safe transportation of flammable liquids by rail. The Final Rule applies to trains transporting large volumes of flammable liquids and will make significant and extensive changes to improve accident prevention, mitigation, and emergency response. A summary of the key provisions contained in the Final Rule is also available.

4/17/2015

PHMSA issued a Safety Advisory to remind hazardous materials shippers and carriers of their responsibility to ensure that current, accurate and timely emergency response information is immediately available to first responders. PHMSA and FRA issued a Safety Advisory to remind railroads operating a high-hazard flammable train that certain information may be required by PHMSA and/or FRA personnel during the course of an investigation immediately following an accident. FRA issued an Emergency Order to require that trains transporting large amounts of Class 3 flammable liquid through certain highly populated areas adhere to a maximum authorized operating speed of 40 mph. FRA issued a Safety Advisory recommending that railroads use highly qualified individuals to conduct the brake and mechanical inspections and recommends a reduction to the impact threshold levels the industry currently uses for wayside detectors that measure wheel impacts to ensure the wheel integrity of tank cars in those trains. FRA issued a Notice and comment request seeking to gather additional data concerning rail cars carrying petroleum crude oil in any train involved in an FRA reportable accident. FRA Acting Administrator sent a letter to the Honorable Edward Hamberger, president of the Association of American Railroads, asking continued commitment of its member railroads to address the safety issues presented.

2/5/2015

DOT submitted a draft Final Rule on the safe transportation of flammable liquids (including crude oil) by rail to the Office of Management and Budget for formal review.

12/11/2014

PHMSA hosted a follow-up meeting with emergency response officials to address gaps in preparedness and training since Feb. 10, 2014 engagement.

7/23/2014

DOT releases a comprehensive rulemaking proposal to improve the transportation of large quantities of flammable materials by rail, including a Notice of Proposed Rulemaking for enhanced tank car standards, an Advanced Notice of Proposed Rulemaking seeking to expand oil spill response planning requirements for shipments of flammable materials and a report summarizing the analysis of Bakken crude oil data gathered by PHMSA and FRA.

6/18/2014

FRA declares that details regarding oil train shipments are not sensitive security information. Previously DOT had ordered railroads to give state officials specifics on oil-train routes and volumes so emergency responders can better prepare for accidents. Some states have agreements restricting the information's release for business and security reasons.

5/7/2014

DOT issues an emergency order requiring all railroads operating trains containing more than 1 million gallons or approximately 35 tank cars of oil being transported from the Bakken region—in North Dakota, Montana, Saskatchewan and Manitoba— to notify State Emergency Response Commissions (SERCs) about the operation of these trains through their states.  PHMSA and FRA also issue a safety advisory requesting companies to take all possible steps to avoid the use of DOT-111 tank cars when transporting Bakken crude oil, which may be more flammable than other heavy crude.

4/24/2014

DOT announces that the agency plans to release a comprehensive rulemaking package containing options for enhancing rail tank car standards. 

Following a Canadian announcement that it will require certain railcars to be taken out of service as well as retrofitting other railcar designs over the next three years.

4/9/2014

FRA announces its intention to issue a proposed rule requiring two-person train crews on crude oil trains and establishing minimum crew size standards for most main line freight and passenger rail operations. 

3/6/2014

DOT issued an emergency order requiring additional testing on the transportation of crude oil by rail.

2/25/2014

DOT issues an emergency order requiring stricter standards to transport crude oil by rail.

2/21/2014

DOT and AAR release an agreement regarding a number of safety enhancements to further reduce the risk from transporting the growing level of crude oil in the U.S. DOT notes that the enhancements will focus on increased track inspections, enhanced braking systems, increased use of rail traffic routing, lower speeds depending on location and cargo, increased community relations, increased trackside safety technology, increased emergency response training and tuition assistance and additional emergency response capability planning.

2/4/2014

PHMSA reports that oil being transported from the Bakken shale formation was not properly classified in certain instances. The department issues $93,000 in proposed civil penalties to Hess Corporation, Whiting Oil and Gas Corporation, and Marathon Oil Company.

1/2/2014

PHMSA issues a safety alert saying that the type of crude oil being transported from the Bakken region may be more flammable than other heavy crude.

11/20/2013

PHMSA and FRA issues a safety advisory reinforcing the importance of proper characterization, classification, and selection of a packing group for Class 3 materials.

8/29/2013

FRA and PHMSA launches Operation Classification in North Dakota's Bakken region to verify that crude oil is being properly classified.

 

In addition to action proposed by federal agencies, some Members of Congress have called for new rules governing railcars carrying crude oil. In 2015, Congress has introduced several bills to improve the emergency response and the safety of crude oil by rail, including the Surface Transportation Reauthorization and Reform (STRR) Act of 2015, the House of Representatives’ multiyear transportation bill. The STRR Act requires a variety of rail-centric reforms, including half-inch thick thermal jackets for tank cars, requiring railroads transporting Class 3 flammable liquids to maintain comprehensive oil spill response plans, and mandating a study and testing of electronically controlled pneumatic (ECP) braking systems. The bill also allocates more than $1.4 billion over the life of the bill to help improve safety for grade crossings. It remains unclear if any of these bills will become law this session, although DOT’s new safety rule addresses some of the issues raised in the proposed bills.

Federal Legislation Introduced in 2015

Bill

Introduced

Status

Summary

H.R. 3651

9/30/2015

Pending

Amends Positive Train Control Enforcement and Implementation Act of 2015 to extend implementation deadlines to Dec. 31, 2018.

S.R. 1462

5/22/2015

Pending

Requires a variety of safety improvements, including the retrofitting and phasing-out of certain tank cars, speed restrictions, crude oil stability requirements, positive train control requirements and spill response plans.

S.R. 1175

4/30/2015

Pending

Establishes a Hazardous Liquids Rail Spill Liability Account, sets a fee on certain hazardous flammable liquids, and creates high hazard preparedness training standards.

S.R. 1006

4/16/2015

Pending

Incentivizes early adoption of positive train control, sets a maximum extension to June 30, 2016, and requires Class I railroad carriers to submit progress reports.

H.R. 1789

4/14/2015

Pending

Ensures the safety of DOT-111 tank cars by improving standards for new tank cars and upgrading existing tank cars.

S.R. 859

3/25/2015

Pending

Crude-By-Rail Safety Act establishes regulations and standards regarding maximum crude volatility, tank car design, enhanced braking, along with other safety initiatives.

H.R. 1290

3/4/2015

Pending

Provides for a study by the Transportation Research Board of the National Academies on the impact of diverting certain freight rail traffic to avoid urban areas.

 

State Action

State inspectors enforce federal and state requirements. State rail transport laws address a number of issues including registration and permit programs, routing requirements, notification, financial liability, emergency response planning and training, inspection, enforcement and shipment restrictions. At least 19 bills to provide funding assistance or stricter standards were introduced in seven states in 2015. Of these, there were eight resolutions, the majority of which urged the federal government to take action in order to increase crude-by-rail safety. New Jersey, which is home to three active oil refineries, introduced eight bills in 2015, of which six were resolutions. Three bills in Minnesota focused on increased funding for safety projects at rail crossings on active crude oil routes, while Washington and California introduced bills aimed at enhancing state emergency response capabilities with regard to crude oil transport by rail.

State Legislation Introduced in 2015

State

Bill

Status

Summary

California

A.B. 102

Pending

Creates the Regional Railroad and Surface Transportation Accident Preparedness and Immediate Response Task Force to plan and be responsible for providing regional and onsite response in the event of the release of hazardous materials from a rail car or accident.

Illinois

H.R. 512

Enacted

Urges the railroad industry to educate and inform public officials on its handling of hazardous materials and to maintain its commitment to safe and effective transport.

Minnesota

H.B. 1251

Pending

Directs the state to assess an annual fee not to exceed $32.5 million on Class I Rail Carriers that operate in the state, and directs that money into the rail grade crossing safety improvement account.

 

H.B. 2018

Pending

Appropriates $11 million in FY 2016 and $22.8 million in FY 2017 to safety improvement projects for railroad at-grade crossings in the state which are used to transport crude oil.

 

H.B. 11a

 

Failed

Allocates $64 million to the Minn. Commissioner of Transportation for safety improvement projects at rail crossings on active crude oil routes, and grants the commissioner the authority to assess an annual fee not to exceed $32.5 million on Class I Rail Carriers that operate in the state, and directs that money into the rail grade crossing safety improvement account.

Nebraska

L.R. 338

Enacted

Urges the Federal Railroad Administration to adopt a rule requiring a train crew of at least two individuals.

New Jersey

A.R. 157

Pending

Urges the U.S. Department of Transportation to prohibit the transport of crude oil through certain populated areas.

 

S.B. 2419

Pending

Prohibits any person from bringing action against a local public agency for cleanup and removal costs or other damages associated with a discharge of hazardous substances.

 

A.R. 171

 

Pending

Urges the U.S. Department of Transportation to promulgate regulations concerning the transport of crude oil by rail that ensures the safety of the state’s residents who live near railroads.

 

 

S.R. 94

Pending

Urges Congress to require upgrades to rail tank car design and to prohibit rail carriers from carrying flammable and combustible liquids near populated areas where feasible.

 

A.R. 180

Pending

Urges the U.S. Department of Transportation to expedite the rulemaking process in order to issue regulations concerning the transport of flammable and combustible liquids by rail and to require certain design standards for rail tank cars.

 

 

S.C.R. 165

Pending

Urges Congress to pass the Crude-By-Rail Safety Act.

 

A.B. 4283

Pending

Requires owners or operators of certain trains to have discharge response, cleanup, and contingency plans to transport certain hazardous materials by rai.

 

 

A.R. 257

Pending

Urges Congress to enact legislation imposing greater safety requirements on shipments of crude oil by rail.

Oregon

H.J.M. 3

Failed

Urges Congress to enact legislation requiring stabilization of crude oil prior to transport.

Washington

S.B. 5087

H.B. 1449

Pending

Provides for oil spill response planning, oil spill prevention planning, creates an oil spill prevention account and emergency management council, requires evidence of financial responsibility from transporters of crude oil in the state.

 

S.B. 5834

Pending

Provides for oil spill response planning, oil spill prevention planning, creates an oil spill prevention account and emergency management council, requires evidence of financial responsibility from transporters of crude oil in the state.

 

S.B. 5057

Pending

Provides grants for emergency responders to assist with oil spill and hazardous material response, requires evaluation of state’s response capabilities.