(John Kemp is a Reuters market analyst. The views expressed are his own)
LONDON, Jan 8 (Reuters) - Most crude oil being transported by rail in the United States and Canada is moving in tank cars that will rupture and catch fire if the train derails, according to accident investigations and reports filed with U.S. rail regulators, posing a lethal danger to railway workers and communities along the route.
Crude shipments by rail as a result of the shale boom have risen 100-fold in eight years. While the risks from transporting oil and other flammable liquids in conventional tank cars have been understood for more than 20 years, regulators and shippers have moved slowly to address the issue because of the costs involved.
New tank cars for transporting ethanol and crude oil ordered since October 2011 have been built to enhanced safety standards to ensure they do not spill their contents in the event of a crash.
But these may not be enough and regulators have still not decided whether the legacy stock of more than 70,000 older tank cars built to earlier and even less safe standards should be retrofitted or phased out.
However, following a recent series of alarming incidents in which crude trains have exploded in a ball of flames, safety regulators are coming under intense pressure to mandate retrofits or upgrades to new tank cars before a major disaster occurs in the United States.
The cost has been estimated by industry insiders at around $1 billion - which seems a small price to pay given the alarming safety problems which have emerged in recent months with the existing tank car fleet.
EXPLODING TANK CARS
On Tuesday, a train carrying propane and crude derailed and caught fire in New Brunswick, Canada. Initial reports indicate up to 15 cars and one locomotive derailed near the village of Plaster Rock. The fire has been left to burn out.
It is merely the latest in a series of alarming accidents in which crude-carrying trains have crashed and caught fire.
On December 30, two trains, one carrying crude, collided in North Dakota, setting off a series of fires and explosions.
And in July 2013, a runaway train carrying oil exploded in the middle of Lac-Megantic, Quebec, igniting a fireball with tragic consequences, killing more than 40 people and incinerating the centre of the town.
Rail industry experts claim moving crude and other flammable liquids such as ethanol by rail is almost as safe as moving it through underground pipelines.
Between 2006 and 2011, North American railroads carried almost 1.4 million tank cars loaded with ethanol, which is even more flammable than oil.
According to the Tank Car Committee of the Association of American Railroads (AAR), just 163 of those tank cars were involved in 10 separate derailments, and only 66 tank cars were breached and lost some or all of their load (representing 0.005 percent of tank car originations).
But the number of tank cars carrying flammable liquids across North America is soaring as a result of the shale boom. Crude oil shipments in tank cars rose from 4,000 carloads in 2006 to 400,000 in 2013, and the number of serious accidents, including fatalities, is rising disturbingly.
Part of the problem stems from the misclassification of train cargoes. In some instances, light crude from shale fields in North Dakota and elsewhere has been classified as a Packing Group III "low-risk" material under hazmat regulations.
It should have been identified as a Packing Group II ("medium risk") or even Packing Group I ("high risk") material because of its unusually high flammability and toxicity.
Classifying crude cargoes as Packing Group I or II would require shippers and railroads to take extra precautions, including selecting appropriate tank cars, restricting their placement on the train, enforcing slower speed limits, and other safety measures.
Following the Lac-Megantic incident, Canadian safety inspectors found at least some tanks on the train were carrying highly flammable crude that should have been classified as PG II but had been mis-labelled and entered on the manifest as PG III.
U.S. rail safety regulators have subsequently launched "Operation Classification", a blitz of unannounced checks in North Dakota and elsewhere to ensure oil cargoes are labelled properly, warning shippers it is their responsibility to test, characterise and classify all tanks properly.
TANK CAR DESIGN
But on its own, proper classification may not be enough. Accident investigators have been warning since 1991 that the type of tank cars used to move most crude oil and other flammable liquids such as ethanol are liable to rupture and catch fire in the event of a derailment.
The issue centres on the safety of a type of unpressurised tank car known as DOT-111 that may be used in general service and to transport some hazardous liquids.
There are around 230,000 DOT-111 tank cars in use across North America, according to the AAR, which represents the major rail operators in the United States and Canada.
Just over 90,000 are currently employed to transport flammable liquids, with around 40,000 used to carry ethanol and 50,000 used for crude, according to data from the U.S. Federal Railroad Administration and the AAR.
But the safety of DOT-111 tank cars has been repeatedly criticised by investigators from the U.S. National Transportation Safety Board (NTSB) as contributing to rail accidents, some of which have involved fatalities.
CHERRY VALLEY, IL
"NTSB has noted that DOT-111 tank cars have a high incidence of tank failures during accidents," board officials wrote in a report on a serious derailment at Cherry Valley, Illinois, in June 2009, when a 114-car train travelling at 36 miles an hour derailed at a highway/rail grade crossing.
Of 19 cars which derailed, all carrying ethanol, 13 lost load or caught fire.
A series of fiery explosions burned for almost 24 hours, fatally injuring one person in a car stopped at the crossing, seriously injuring two others, and prompting the evacuation of 600 nearby homes.
NTSB warned about "the continued inability of DOT-111 tank cars to withstand the forces of accidents" even when the train is travelling at relatively slow speeds.
NTSB has identified several vulnerabilities with DOT-111 tank cars, including the high risk of the rounded ends being punctured by other cars in a derailment, as well as the risk of failure in the bottom outlet valves and damage to the fittings on top of the tank.
There is some uncertainty about just what proportion of tank cars would leak and catch fire in the event of a derailment, but NTSB put the overall failure rate of tank cars that derailed at Cherry Valley as high as 87 percent.
It therefore comes as no surprise that recent derailments in Quebec, North Dakota and now New Brunswick resulted in terrifying fires and explosions. In every case, trains were carrying highly flammable liquids in tank cars that were likely to rupture and catch fire once derailment occurred.
NTSB has also warned about the special risks posed by moving large volumes of ethanol and crude in "unit trains" comprised solely of tank cars carrying the same flammable liquid. In the event of a derailment and some tank cars being breached, there is an increased likelihood of a large pool fire generating enough heat to threaten the integrity of other neighbouring tank cars.
Following the Cherry Valley disaster, the NTSB recommended to rail regulators that all new and existing tank cars authorised to carry ethanol and crude in Packing Groups I and II should be fitted with enhanced head and shell puncture resistance systems and crash-resistant top fittings. It also urged better bottom outlet valves that would remain closed in an accident.
But the response has been slow. The AAR's own Tank Car Committee has itself proposed improvements, responding to some but not all of the risks identified by NTSB, which became mandatory for all tank cars ordered after October 2011, and has petitioned the Pipeline and Hazardous Materials Safety Administration (PHMSA), the official federal regulator, to make them mandatory.
The rulemaking process has been grinding forward slowly. Initially, the rail industry did not want new standards to apply to existing tank cars, citing the high costs of retrofits. But as the list of disasters has lengthened, opposition has softened. In November 2013, the AAR requested PHMSA to require existing tank cars to be retrofitted or phased out.
While some outsiders have been quick to blame the rail operators, most tank cars are actually owned by shippers or leasing companies. The railroads have been relatively supportive of new safety requirements. Tank car owners have been far more reluctant.
There is the question of cost. Tank cars have a design life of 40 years and the average age is currently just 8 years. There are fears about a sudden shortage of cars if existing ones are ruled unsafe, restricting the ability to move crude out of shale areas to refineries. Shippers of liquids other than ethanol and crude which move by DOT-111 also worry that their own operations and costs will be affected by rule changes.
FEAR GALVANISES ACTION
In a filing dated November 15, AAR told PHMSA it "now support(s) even more stringent standards for new tank cars."
Lac-Megantic has prompted a major re-evaluation. AAR proposes "additional requirements for tank cars transporting flammable liquids, including packing Group III flammable liquids, retrofits of existing cars in flammable liquid service, and an aggressive phase-out of cars that cannot meet retrofit requirements."
AAR now supports the mandatory introduction of full-height head shields to prevent tanks being punctured and accepts NTSB recommendations on bottom openings. It has also suggested PHMSA consider creating a whole new tank car class to differentiate between the DOT-111 and tank cars built to new specifications (http://link.reuters.com/byf85v).
PHMSA is still considering various options, prompting one community to write and complain that "it is vital that federal regulators act aggressively to rectify the known defects in the DOT-111," and warn "the rail industry has failed to act in the last two decades to correct the known defects in DOT-111 tank cars."
But as the list of accidents grows, replacement and retrofitting has become politically inevitable. Because while the old DOT-111 cars remain in use, they will derail, they will breach, they will catch fire, and another major disaster involving a large loss of life is only a matter of time.
(Editing by Jason Neely)