Rail disasters prompt crackdown on risky oil shipments

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WASHINGTON -- U.S. energy companies using railroads to carry crude oil must conduct tests to help ensure that the cargoes won't explode or eat holes through tank cars, after rising train derailments spurred new emergency rules.

An order issued Wednesday by the Transportation Department requires oil explorers including Continental Resources Inc. and EOG Resources Inc. to test the chemical composition of all crude intended for rail shipment. While the new rules focus on volatile Bakken crude, they also require more robust tank cars for transport of material designated lower risk, such as bitumen from Canada's oil sands.

"It's going to have far-reaching ramifications, and I don't know for how long," said Marvin Trimble, director of commercial development for Strobel Starostka Transfer Canada Ltd., a Calgary, Alberta-based rail services company.

Crude-by-rail shipments have soared alongside U.S. oil production, as drillers employing new technologies cracked open shale formations faster than pipelines were built to handle the outflows. The bonanza has increased the risks of explosion and fire because much of the new supply is more volatile than some traditional types of domestic oil. There have been 10 derailments of trains carrying crude in North America during the past year, including the Feb. 13 derailment of a Norfolk Southern Railway train that spilled about 4,000 gallons of crude oil near Pittsburgh, in Vandergrift in Westmoreland County.

The directive addresses what the Transportation Department called an "imminent hazard" to the communities and environment through which crude-hauling trains move. Companies that ignore the order may be fined as much as $175,000 a day for each violation. Individuals may also be subject to fines and as much as 10 years in prison under the emergency order. "Petroleum crude oil may contain dissolved gases, may exhibit corrosive properties and also may exhibit toxic properties," the agency said.

The most severe recent incident happened in July in Lac-Megantic, Quebec, where an unattended train carrying oil rolled away, derailed and exploded in a fireball that killed 47 people and leveled half the downtown. In December, a BNSF Railway Co. train carrying Bakken formation crude crashed in North Dakota, forcing a town's evacuation.

A Federal Railroad Administration investigation found that shippers sometimes misclassified oil they were offering for sale, loading it into tankers not stout enough to safely carry materials in the highest hazard category. "Misclassification is one of the most dangerous mistakes to be made when dealing with hazardous materials," the department said in the order. "Misclassification may indicate larger problems with company management, oversight and quality control."

The agency order was issued as railroad companies, refiners, oil producers and distributors gathered in Glendale, Calif., at the Crude by Rail 2014 conference.

The federal order threatens to reduce or delay shipments of bitumen and other low-volatility fuels by ordering them reclassified, oil-by-rail companies said. The order raises the risk level of an entire class of less-volatile grades that must now be shipped in "more robust" tank cars. Oils previously categorized as less-flammable Group III products must now be labeled as Group I or Group II, which require safer cars.

The directive threatens to exacerbate a shortage of tank cars, forcing U.S. shippers to search for more protective units designed to handle flammable crudes or risk curtailing deliveries, Strobel's Mr. Trimble said at the Crude by Rail conference.

The department's order caused industry confusion, as refiners and producers tried to understand what the new requirements will mean to their operations and how broadly they will apply.

Last week, railroads agreed with U.S. regulators to slow trains hauling crude around urban areas and install safety equipment.

Federal regulators are separately considering requiring upgrades to DOT-111 tank cars, which the U.S. National Transportation Safety Board has said must be strengthened to reduce spill risks.

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