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Transporting Crude Oil by Rail State and Federal Action

Transporting Crude Oil by Rail: State and Federal Action

Sijia Qiu and Kristy Hartman 7/25/2014

Overview

crude oil transport train imageTechnological advances such as hydraulic fracturing and horizontal drilling are driving the increase in oil and natural gas extraction and allowing access to shale resources in Canada and the U.S. that were previously uneconomical to develop.

In fact, the United States became the No. 1 producer of oil in the world in 2014—overtaking Saudi Arabia and Russia. The U.S. produced 8.4 million barrels per day of oil in April 2014, which is the highest monthly production volume in more than 25 years—with North Dakota and Texas supplying almost half of the total U.S. crude oil production. The rapid expansion of crude oil production in North America has increased the use of rail, truck, barge and pipeline to carry crude to refineries.

Upon extraction, crude oil is transported to refineries to be processed into useful petroleum products—such as heating oil, diesel fuel or gasoline. According to the U.S. Department of Transportation (DOT), in 2009 70.2 percent of crude oil and petroleum products were transported by pipeline while 23.1 percent were shipped by oil tankers, 4.2 percent by truck and just 2.6 percent by rail. In 2013, crude oil accounted for just 1.4 percent of the commodities carried by rail. Although oil makes up a small percentage of rail freight, this proportion is increasing rapidly.

According to the American Association of Railroads (AAR), the amount of crude oil being transported on Class I railroads—operating on more than 95,000 miles of track in the U.S.—experienced a 255 percent increase in 2012 and an additional 74 percent increase in 2013. Crude oil producers are increasingly relying on rail to carry oil to domestic markets since some U.S. pipelines are approaching capacity and the national barge network may not serve current oil production areas.  In 2013, the total share of oil and gas rail shipments grew to 11 percent. In December 2013, the Bureau of Transportation Statistics reported that rail and oil pipeline transport between the U.S. and its North American Free Trade Agreement (NAFTA) partners—Canada and Mexico—has increased by 16.1 percent and 14.2 respectively, compared to the same period in 2012.

The rapid growth in crude oil rail transportation has focused attention on safety issues, especially after several recent accidents. A derailment and explosion killed 47 people and spilled 1.5 million gallons of crude oil in Lac M├ęgantic, Quebec and approximately 750,000 gallons of crude oil spilled from a train in Alabama. Other derailments occurred in North Dakota, releasing more than 400,000 gallons of oil and in Virginia, forcing the evacuation of more than 300 residents. 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.

Railroad Classes

More than 570 freight railroads operate in the United States according to the American Association of Railroads (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 $453 million as of 2012. There are currently seven Class I railroads accounting for 69 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 will require 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.

Timeline of Federal Agency Efforts to Address Rail Safety Concerns

Date

Summary

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 2013 and 2014, Congress has introduced several bills to improve the emergency response actions and the safety of crude oil by rail. It remains unclear if any of these bills will become law this session.

Federal Legislation Introduced in 2013 or 2014

Bill

Introduced

Status

Summary

S. 2478

6/17/2014

Pending

Authorizes the Secretary of Transportation to partner with industry to strengthen the safety practices of short line and regional freight railroads.

H.R. 4745

5/27/2014

Pending

Provides funding for new rail and hazardous material inspectors and expands the use of automated track inspections to ensure railways are properly maintained.

H.R. 4738

5/22/2014

Pending

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

H.R. 3040

8/2/2013

Pending

Requires a crew of at least two individuals to operate a freight train or light locomotive engine used in the movement of freight, with one certified by the FRA as a locomotive operator and the other as a train conductor.

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 six states in 2013 and 2014. Five states have passed legislation that raised oil-spill response funds to aid in training firefighters and purchasing equipment. Pending legislation includes efforts to fund additional railroad inspections, developing better spill-response plans and improving communications between rail carriers and emergency services agencies. Some state actions, such as those in Oregon and Pennsylvania, call for stricter inspections on freight rail operations and new standards for tank cars and railroad transportation of oil.

State Legislation Introduced in 2013 and 2014

State

Bill

Status

Summary

California

S.B. 861

Enacted

Requires an oil spill contingency plan and appoints additional members to the Oil Spill Technical Advisory Committee including one member with knowledge of the railroad industry and another with knowledge of the oil production industry.

 

A.B.1317

Enacted

Requires every railroad operator to submit a risk assessment to the state and creates the Railroad Accident Prevention and Immediate Deployment Force responsible for providing immediate response to surface transportation accidents.

 

A.B.2678

Pending

Appoints an additional member to the Oil Spill Technical Advisory Committee, established to provide public input on oil spill prevention and response in the state.

 

S.B. 1319

Pending

Expands the regional and local planning of the state oil spill contingency plan and requires additional inspections and an annual report outlining railroad sites that may pose a potential safety hazard.

 

A.B. 1466

 

Pending

Creates an oil spill contingency plan, which must include information on train cars, track routes, and facilities.

 

S.B. 506

Pending

Creates a fund to pay for planning, developing, and maintaining a capability for emergency response to railroad accidents involving tank cars carrying hazardous materials.

 

A.B. 380

Pending

Requires a rail carrier to report on a quarterly basis certain information about the transportation of hazardous materials.

 

S.J.R. 27

Pending

Urges the U.S. Department of Transportation (DOT) to partner with the Canadian Transportation Agency to improve safety of the North American railroad tank car fleet by adopting a stricter design standard and by retrofitting or phasing out tank cars that do not meet that standard.

 

A.B. 2677

 

Failed

Requires the state Environmental Protection Agency to submit a report containing recommendations for a comprehensive and coordinated oil spill contingency plan designed to address oil spills resulting from the transportation of crude oil by railroad.

Maine

 

H.B. 970

Vetoed by Governor

Establishes a two-year moratorium on the transportation of petroleum products derived from bituminous sands and studies the potential effects of transporting these materials, including the effects on the health and safety of the public and the environment and the potential cost of remediation of an oil spill.

Minnesota

H.B. 3172

Enacted

Provides funding for railroad emergency preparedness and response including hiring additional inspectors, requiring railroad companies to train local fire departments, and requires the commissioner of public safety to submit a report on emergency response preparedness.

 

H.B.3260

Failed - Adjourned

Provides funding for railroad emergency preparedness and response including hiring additional inspectors, requiring railroad companies to train local fire departments, and requires the commissioner of public safety to submit a report on emergency response preparedness.

Oregon

H.J.M. 201

Adopted

Urges the U.S. Congress to enhance safety standards for new and existing tank rail cars used to transport crude oil and other flammable liquids.

Pennsylvania

 

H.R. 893

Pending

Urges the U.S. Department of Transportation (DOT) and the National Transportation Safety Board (NTSB) to conduct a comprehensive inspection of all railroads in the Commonwealth to ensure that the railroads are capable of withstanding the increased rail traffic.

Washington

S.B. 6262

Failed - Adjourned

Requires a study examining the state’s capacity to respond to accidents involving railcars transporting oil.

 

S.B. 6524

Failed - Adjourned

Requires a study and an evaluation on the safety of transporting oil and hazardous materials in bulk by rail.

 

S.B. 6576

Failed - Adjourned

Requires a study examining the state's capacity to respond to and recover from accidents involving railcars transporting oil.

 

S.B. 6582

Failed - Adjourned

Requires a study on the safety of transporting crude oil by rail.

 

H.B. 2347

Failed - Adjourned

Requires a study regarding the state's capacity to respond to and recover from accidents involving railcars transporting oil.

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