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U.S. moves to enhance safety of oil-by-rail shipments

By Edward McAllister and Joshua Schneyer

NEW YORK (Reuters) - The U.S. Department of Transportation on Wednesday proposed new safety rules for hauling crude oil by rail after a string of explosive accidents, in a move that could impact railroads, drillers, refiners and railcar makers amid an energy boom.

The draft rules, which are subject to a 60-day public comment period, come as regulators respond to a 50-fold hike in crude-by-rail cargoes since 2008, and more than a dozen accidents that have tarnished the lucrative new shipping trend.

Among the proposed rules released by the DOT are new speed limits for trains carrying oil, enhanced safety features for new railcars to carry oil and ethanol, and a quick phasing-out of older cars deemed unsafe. Other measures include advanced braking systems for trains, and expanded oil flammability testing before cargoes are shipped.

"We need a new world order on how this stuff moves," Transportation Secretary Anthony Foxx told reporters after the release of the draft rules.

The regulator's move has been widely anticipated by safety advocates and industries involved in energy shipments, including drillers and refiners who are wary that restrictions could hamper their shipments, and tank car manufacturers, who may benefit from big new tank car orders. Since the rules also affect shipments of ethanol, another flammable liquid, they could also impact the giant agribusiness industry.

Over the last 18 months, at least a dozen trains carrying crude oil have derailed, six of which led to oil spills and major fires and one of which caused the death of 47 people in Quebec, Canada.

Most of the incidents have involved crude from the shale oil revolution of the past three to fours years in the Bakken region of North Dakota and Montana, which makes up the bulk of crude-by-rail shipments that now surpass 1 million barrels per day.

On Wednesday, the DOT said its own testing has determined that Bakken crude, known for its high content of gases, is more flammable than crude from other regions.

Republican Senator John Hoeven of North Dakota said the "comprehensive" proposed rules are a welcome step. "For over two years, we have been pressing DOT to update and expedite standards for rail cars," Hoeven said in a release.

TANK CAR PHASE-OUT

The most contentious proposals involve the phase-out of about 50,000 older tank cars that make up the majority of the oil-by-rail fleet but are deemed unsafe by DOT officials for shipping crude.

The DOT proposes prohibiting the use of these older cars known as DOT-111s for shipping flammable crude oil that falls into a category known as packing group 1. The DOT said that the vast majority of Bakken crude samples it has tested meet the criteria for packing group 1.

Under the proposal, such crude could be banned from these older cars within two years. Less volatile crudes that fall into packing groups two and three could still be shipped in the older cars for three and five years respectively.

"It's a phase-out based on risk. We want to get the worst stuff off the road as soon as possible," said Cynthia Quarterman, administrator of the DOT's Pipeline and Hazardous Materials Safety Administration.

The phase-out ruling and the DOT's Bakken testing is likely to stoke a fierce debate between producers, oil refiners, railroads and even U.S. residents who have been lobbying about new tank car standards for months.

Some questioned if older cars could be phased out this quickly, given the sheer number of cars involved. Brigham McCown, a transportation safety consultant and former DOT official said "it will likely take longer to get those cars out of service."

Relying only on newer cars could raise transportation costs for refiners or leading Bakken oil producers such as Oklahoma City-based Continental Resources Inc .

Big oil producers have contended that Bakken oil is no more volatile than other U.S. varieties and should not face added shipping restrictions. Railroads, meanwhile, have expressed concern about the dangers of shipping growing volumes of volatile liquids on their lines.

The American Petroleum Institute, the U.S. oil industry's biggest trade group, rebutted the DOT's Bakken crude testing.

"The best science and data do not support recent speculation that crude oil from the Bakken presents greater than normal transportation risks," said API President Jack Gerard.

The DOT proposed new safety specifications for future tank cars with thicker hulls, advanced braking systems and roll-over protection. A boom in orders for new tank cars and for retrofitting older cars would likely benefit tank car manufacturers.

Shares in rail-car manufacturers rallied on the news, with American Railcar Industries Inc gaining 3 percent, while Greenbrier Co rose nearly 1 percent and Trinity Industries Inc climbed 0.3 percent by mid afternoon.

The DOT offered three speed restriction proposals – 30, 40 miles and 50 miles per hour (48, 64 and 80 kph) – depending on the age and safety specifications of the tank cars and the trains' braking systems. Railroads have expressed concern that slowing traffic could stunt business and possibly impact wider commuter rail journeys. The DOT also called for updated braking systems, offering three different options including electronic pneumatic brakes.

"New tank car regulations are needed, but they will affect everyone," said Brigham McCown, a transportation safety consultant and former DOT official. "The costs will be passed along to consumers at the pump."

(Reporting by Ros Krasny, Timothy Gardner, Edward McAllister and Joshua Schneyer; Editing by Alden Bentley and Marguerita Choy)

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