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Damn the Regs! Oil, Rail Firms Adopt Safer Tank Cars On Their Own

As the U.S. government plods toward new rules, oil shippers, a tank car manufacturer and two Canadian railroads are moving as quickly as possible to replace older cars.

Companies that transport massive amounts of flammable crude oil say that, after several fiery explosions, they’re not waiting for the U.S. government to issue new regulations and will replace tank cars with new safer cars as fast as they can.

Two oil companies, two Canadian railroads and a tank car manufacturer all have in recent days announced plans to increase the production and use of an updated tank car known as the DOT-111, shunning an older version of the car that many experts believe contributed to recent explosive accidents including the deadly July 6, 2013, derailment in Lac Megantic, Quebec, which killed 49 people.

Refiner Tesoro told investors that by midyear its entire tank car fleet will be made up of the newer cars, which have protective plates at both ends and thicker shells that make them more resilient in a crash.

"We're proactively making these commitments today, before expected changes in future federal regulations, because we believe it's the right thing to do for all of our stakeholders,” Keith Casey, Tesoro’s senior vice president of strategy and business development, announced on Feb. 6.

Another independent refiner, PBF Energy, told investors this week that, beginning in April, it will only accept trains made up entirely of the newer cars at its 182,000-barrel-per-day Delaware City refinery.

The railroad industry has taken the lead in ordering improved safety standards on the cars, as the Pipeline and Hazardous Materials Administration, which oversees the movement of hazardous substances, the U.S. Department of Transportation’s Pipeline and Hazardous Materials Safety Administration has yet to release new tank car regulations, which those in the industry say have made their job harder.

"We feel it is very important for the DOT to implement higher tank car standards for new cars as soon as possible," said Holly Arthur, spokesperson for the Association of American Railroads. "Doing so will provide certainly to the marketplace and ensure that all new cars are being built to the higher federal standards."

Discussions about car design date back to 2009, when government asked industry to draft updated standards for the DOT-111. In early 2011, the committee of stakeholders in rail and transport submitted a proposal to regulators for an updated DOT-111 design. As regulators studied the proposal, the Association of American Railroads voluntarily adopted those standards, and tank car manufacturers began to make the more resilient DOT-111s.

About 14,000 of the newer cars have been built, but 78,000 of the older cars still crisscross the country carrying crude. Those older cars have proven prone to puncture in recent crashes, sending balls of flaming crude into the sky.

In a meeting with oil and rail industry leaders in January, the federal government urged rail and oil industry groups to discuss and agree on new standards for the tank cars, to be used in the ongoing rule-making process. New federal standards are not expected until 2015, at soonest. Government says it is working with the industry to improve safety in other ways in the interim.

“Safety is always a top priority," said Kevin Thompson, spokesman for the Federal Railroad Administration. "We have been aggressively taking action on multiple fronts to mitigate risks and ensure the safe transportation of hazmat by rail, including tank car design; and in the meantime we are examining what other intermediate steps can be taken outside of the rulemaking process."

Separately, Canadian National, Canada's largest railroad and one of the biggest in North America railroads, announced it had started to charge shippers using the old cars more than those with the new, a move first reported by Reuters.

“We have structured our rates to create an economic incentive for customers to acquire, over time, more robust tank cars,” said Mark Hallman, a spokesman for Canadian National. He would not specify when the company put the policy into effect, nor any specifics of the rates.

Canadian Pacific Railway, the nation's no. 2 railroad, on Friday announced it too would impose a surcharge on customers who transport crude in older tank cars.

The move to the safer tank cars will likely mean even more business – and pressure -- for manufacturers, which already face a backlog of in the tens of thousands of orders thanks to the oil boom. One company is getting ready.

Greenbrier Corp., a leading tank car manufacturer, said this week that it planned to design a new “Tank Car of the Future” for the transport of crude and ethanol and offer retrofits to older-style DOT-111s, which will likely be in high demand as more companies turn to the sturdier cars to try to save money, and to prevent disasters.