By R. Bruce Striegler

At a May 1 joint news conference in Washington D.C., Canada’s Minster of Transport, Lisa Raitt, joined U.S. Transportation Secretary Anthony Foxx to announce new oil-by-rail regulations. Seemingly long in coming, the regulations are a response to the series of fiery and explosive oil train derailments across Canada and the U.S. The derailments, the subsequent explosions and fires first gained attention in July 2013, following a train accident and fire that destroyed the central business district in the Quebec town of Lac-Megantic, killing 47 people.

The Canadian government took an initial step on oil-by-rail safety improvements in February 2015, when it introduced the Safe and Accountable Rail Act. That legislation outlined amendments to federal railway legislation, including the Canada Transportation Act, and were designed to strengthen the liability and compensation system for federally-regulated railway companies transporting certain dangerous goods, including crude oil. The amendments establish minimum liability insurance levels for freight railway operations.

The news from the May 1 event included an announcement that both governments will phase out the DOT-111 railcars, the oil-by-rail workhorse of the last several decades. The rupture-prone cars will be removed or retrofitted under a timetable that ranges from three to ten years. Some newer tank cars, called 1232s, that were built to a voluntary standard agreed to by the industry in 2011 must also be phased out or retrofitted. Under the rules, tank cars carrying the most volatile liquids, including crude oil and ethanol, must have an outer shell, a thermal lining to withstand fire, tougher valves top and bottom, and thicker, 9/16ths-inch steel walls to keep them from rupturing.

Earlier in April, responding to public pressure to act quickly after fiery train derailments involving oil shipments, the U.S. Transportation Department issued a series of emergency orders, including a 40-mile-an-hour speed limit for hazardous materials moving through urban areas. Following the May announcement of new safety rules, Canadian Pacific Railway Ltd. (CP Rail) CEO Hunter Harrison commended Minister Raitt’s tank car announcement, but took issue with newly announced rules requiring trains carrying dangerous goods to slow to 50 miles per hour or less when passing through populated areas or other routes deemed to be higher-risk. “While we will comply with all the orders, I must again reiterate that reducing train speeds does not address the causes of railway accidents, nor is it a solution to rail safety,” Harrison said in a statement. “Human behaviours are a significant factor and should be the focus if the goal is to truly improve safety.”

Railway braking systems still an outstanding issue between the two countries

With respect to braking, the new regulations stipulate that trains of more than 70 cars carrying the most volatile classes of liquids must have electronically controlled brakes that automatically stop all the cars in a train at the same time, instead of sequentially. The braking requirement applies only to U.S. trains and goes into effect on Jan. 1, 2021. The regulation will be extended to all flammable-liquid trains after 2023. Transport Minister Raitt said Canadian regulators are moving on a separate, faster track to adopt a new braking standard.

Safety experts on both sides of the border have long advocated for tougher braking rules, identifying a risk that current systems allow cars at the end of a long unit train to pile on top of each other if an accident occurs. Railways and rail car manufacturers have opposed electronically controlled pneumatic brakes (ECP) because they are costly and some claim they have not been thoroughly tested. Industry experts put the cost of installing ECP brakes on a rail car at about $8,000 or more.

Current traditional train braking systems use pneumatic valves to control and generate brake applications on the cars along the length of the train. This method has been virtually the same since its invention by George Westinghouse in 1868. The Canadian government was asked to clarify whether ECP brakes would eventually be required in Canada as well as the United States, and a spokesman for Ms. Raitt replied that the government would update its rail operating rules to “meet or exceed” the new U.S. rules. When asked by CBC News about Canada’s attitude to the braking technology, Ms. Raitt said, “We did have a trial run of it with a railway in Canada. There were difficulties with implementing it, either our geography or weather or something like that,” but she has instructed government and industry officials in Canada to work with the Americans to “find a Canadian solution” to the new braking rule. Through a spokesman, Canadian National said the company has “serious concerns” about inter-operability and whether the technology will be reliable during Canada’s harsh winter weather.

While regulators had advanced interim measures like speed restrictions, the rules announced in May are more sweeping in scope and will place tougher requirements on the industry, particularly on companies that own the tank cars, including oil producers and tanker car leasing businesses like Chicago-based GATX Corp. Railroads don’t own the vast majority of tank cars, so have no control over whether the costly new brakes are installed. U.S. Transportation Department officials have said they would stand firm on the rule, including the braking requirement, and that they believed it would stand up against a court challenge. Estimated cost of the regulations have been pegged at $2.9 billion, and the oil and railroad industries lobbied heavily against the changes, reportedly meeting numerous times in recent months with White House budget officials.

American rail industry a harsh critic of brake rules

The Association of American Railroads supported the tougher rail car standards but called the new U.S. braking rule “misguided” and said it would threaten North American rail capacity and service. Quoted in published reports, association President Edward Hamberger said, “I have a hard time believing the determination to impose ECP brakes is anything but a rash rush to judgment. This is an imprudent decision made without supporting data or analysis.”

The CEO of Norfolk Southern Railway, Charles Moorman, said the industry would challenge the new rules and that there are “serious mistakes in the regulations.” Reports in American newspapers quote Mr. Moorman saying that in some respects the safety mandates don’t go far enough. He points out that while the railroad industry recommends a tank car having a thermal wrap that won’t explode after 800 minutes in a fire, the U.S. Department of Transportation standards are only requiring thermal wraps that withstand 100 minutes. The rule will also allow for older railcars, which the railroad industry say are accepted as less safe, as long as the oil car is part of a block of less than 20 cars, or there are fewer than 35 oil cars total in the train. Today, both American and Canadian railways utilize unit trains when carrying oil. Unit trains range in length from 90 to 110 cars, allowing a rail operator to substantially cut cost and time, since unit trains go directly from the point of origin to the point of destination eliminating the need for stops, starts and switching.

Mr. Moorman says he was surprised by the requirement that oil tank cars have electronically controlled pneumatic brakes. He said his company has found them ineffective in testing. “It is very expensive, it doesn’t work well,” he told the Wall Street Journal. “We are committed to safety. The last thing in the world we want is a derailment, but this technology just doesn’t do anything.” It was ironic since his remarks were published on a morning when another oil train derailed and exploded. A 109-car train operated by Burlington Northern Santa Fe (BNSF) left the tracks in Heimdal, North Dakota, and the handful of residents were evacuated. The tank cars involved were unjacketed CPC-1232s, which the federal rules would require be phased out by 2020.

The U.S. Department of Transportation also issued an advisory to railroads to use the latest technology to check for flaws in train wheels that can cause a crash; a broken train wheel is suspected of causing the March 5 derailment near Galena, Ill., of a BNSF Railway train hauling 103 cars of Bakken crude. Furthermore, regulators did not ask railroads to notify communities of any oil train traffic but the new rules will require a “point of contact” for information related to the routing of hazardous materials.

Skyrocketing volumes of oil-by-rail driven by lack of pipelines, seem to be flattening

The extraordinary growth in oil-train shipments across Canada and the U.S. has slowed in recent months according to the Wall Street Journal. Low crude prices and increased safety concerns fueled by numerous derailments and fiery explosions are likely contributors to the decline. In the U.S., the number of train cars carrying crude and other petroleum products peaked last fall, according to data from the Association of American Railroads. In March 2015, oil-train traffic was down 7 per cent on a year-over-year basis. Rail shipments of oil expanded from 20 million barrels in 2010 to just under 374 million barrels last year, according to the U.S. Energy Information Administration.

Rail was seen as a lifeline for Canadian oil producers in the absence of new pipelines, but narrowing spreads between Canadian oil and global benchmarks in recent months is making the business model uneconomic in an already depressed price environment. Before oil prices sank, Canadian producers shipped oil by rail to realize much higher West Texas Intermediate oil prices on the U.S. Gulf Coast than they could at the Hardisty terminal in Alberta. The business made sense even after taking into account transportation costs as high as $21 per barrel of oil on rail, compared to $7 via pipeline. In addition, transporting the required diluents of the Alberta oil, back from Houston to Alberta transformed the oil-by-rail business into a roaring growth segment for midstream and rail companies. (Similar diluents are used in the North Dakota oil.)

Canadian crude oil exports by rail, not counting domestic hauls to refineries, grew to just over 182,00 barrels per day by the third quarter of 2014, compared to around 165,000-bpd at the start of 2014, figures from the National Energy Board show. Rail cars carrying crude fell to 13,773 units last November, compared to 15,672 during the same month in 2013, according to Statistics Canada. BNSF Railway Co., which is responsible for about 70 per cent of U.S. oil-train traffic, operated as many as ten trains a day last year, but is averaging nine a day now, a spokesman said. Oil-by-rail picked up steam in recent years, as major pipeline projects such as Keystone XL and Northern Gateway became mired in controversy. After growing almost ten-fold between 2012 and 2013, oil-by-rail volumes seems to be leveling off.

CP Rail has reduced its forecast for crude oil shipments this year, although it still expects the segment to grow around 25 to 30 per cent. Canadian National Railway Co., which expects its oil business to grow 35 per cent, says there is little clarity around the oil market at the moment. “This is why we have reduced our expectation in terms of this market, but the investments are being put in place, and the markets will need those services and we think they will need them, not only in 2015, but also for the long term,” CN CEO Claude Mongeau told analysts during a conference call in late January.