Speculation Mounts Over Impending Crude By Rail Rule

As speculation over the federal government’s forthcoming rule on rail shipments of crude oil grows, two items hit the press last week increasing speculation over the details of the reforms.

On July 15, 2014, Bloomberg reported that representatives from the American Petroleum Institute (API) and the Association of American Railroads (AAR) met with the Transportation Department at the Office of Management and Budget on July 11 to present a joint plan for the phase-out of older tank cars.  According to Bloomberg, two people familiar with the proposal, who were not identified, said that the parties agreed to scrap a fleet of thousands of DOT-111s within three years if manufacturers agree they can replace or retrofit the tank cars in that period.  Bloomberg’s report did not include the specifics of the proposal and, at that time, neither the API nor AAR responded to requests for comments on the proposal.  As of today, no proposal has been made available on the API or AAR website.

In addition, the Associated Press ran an article entitled Oil, railroad industries moving faster than regulators on tank cars, which said: [r]egulations drafted by the Transportation Department to boost the safety of moving oil by rail are believed to lay out a six-year timeline for scrapping those older, legacy tanker cars. . .  The AP cited the Bloomberg report noting that the railroads and the oil industry have reportedly advanced a voluntary plan to replace them within three years.

Meanwhile, in a letter to the Administrator of the Pipeline and Hazardous Materials Safety Administration, the CEOs of Union Tank Car and GATX Corporation urged action on rail operations rather than tank car specifications.  According to this Businessweek report, the CEOs told PHMSA that [t]he quickest and most meaningful way to improve crude-by-rail safety is to approve new regulations regarding railroad operating procedures and classification and testing of flammable liquids, wrote Union Tank Chief Executive Officer Kenneth Fischl and the CEO of lessor GATX Corp, Brian Kenney.

One thing is certain amid the speculation, the new rule will have significant impact given the dramatic recent growth in U.S. crude by rail shipments.

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