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COLUMN-Rail industry has underestimated risks of tank cars: Kemp

John Kemp
Thursday, 9 Jan 2014 | 8:52 AM ET

(John Kemp is a Reuters market analyst. The views expressed are his own)

LONDON, Jan 9 (Reuters) - Train accidents involving crude oil and other flammable liquids are becoming uncomfortably common. The fiery train derailment in New Brunswick on Tuesday is the third major accident involving crude by rail in just three months, and the fourth since July 2013.

Serious accidents involving derailments and train fires are running at one a month, which suggests the dangers of this form of transport have been underestimated by the industry and regulators.

Railway tank cars have played an essential role in the shale revolution as well as the carriage of ethanol for blending into the gasoline supply. But as the volume of flammable liquids carried by rail rises, the risks are becoming more apparent.

Based on historic derailment rates and the increased number of tank cars carrying oil and ethanol in the United States and Canada, it is likely that over 70 tank cars carrying flammable liquids will derail each year.

In the event of accidents, it is vital tank cars do not rupture and retain their loads to avoid the risk of fires and explosions to minimise the threat to train crews and nearby residents.

Unfortunately, current tank car designs cannot be relied on to maintain their integrity in the event of an accident. In recent incidents, more than half of the tank cars which have derailed have caught fire. On current trends, that means more than 35 oil and ethanol tank cars are likely to catch fire each year.

The rail industry and regulators have been slow to respond. Safety measures have not kept pace with the rapid growth of the industry. It is not enough to keep reiterating that rail tank cars are relatively safe. As the amount of crude and ethanol moving by rail surges, accidents are becoming unacceptably regular.

PROMPT CORRECTIVE ACTION

Efforts to reduce the risks by writing new rules for tank cars carrying flammable liquids like crude oil and ethanol have become bogged down in disputes between communities, railroad operators, tank car owners and oil producers over who is ultimately responsible for improving safety, what modifications are needed and how much money should be spent

Attempts to introduce new safety standards and designs for tank cars carrying crude and ethanol have been an example of rule-making at its worst. The purpose of a consultation process should be to write better rules. In this instance, it has simply led to lengthy delays, leaving railroad workers and communities exposed to unacceptable risks.

The behaviour is self-defeating, leaving the entire industry exposed to massive legal liabilities. The cost of a serious accident in a densely populated area of the United States or Canada would dwarf the costs of even the most stringent and expensive upgrades to the tank car fleet.

In the case of the Quebec rail disaster in 2013, the railroad operator immediately went bankrupt. So the business case for making safety improvements is overwhelming.

It is time for the industry to set aside its differences and pull together to recognise the absolute commercial, safety and political imperative of improving tank car performance.

To address the problem, the Pipeline and Hazardous Materials Safety Administration (PHMSA) and the Federal Railroad Administration (FRA), which are jointly responsible for regulating railroad safety in the United States, need to bring the consultation process to a swift conclusion.

PHMSA and FRA should move to introduce rules for oil and ethanol tank cars based on the most recent recommendations of the Association of American Railroads (AAR) and the U.S. National Transportation Safety Board (NTSB).

New designs should become mandatory with immediate effect and existing rolling stock should be retrofitted or phased out on an accelerated timetable to ensure the carriage of crude by rail is made as safe as possible. It is time to stop consulting, finalise new rules and begin enforcing them.

HIDDEN RISKS REVEALED

Derailments and spillages from trains carrying crude and ethanol "are very rare events" according to a joint task force established in 2011 by the AAR as well as the Railway Supply Institute (RSI) (which represents tank car owners), the American Petroleum Institute (API) (representing crude producers) and the Renewable Fuels Association (RFA) (representing ethanol interests).

"Unfortunately, while they are low frequency such incidents can represent very high consequence and, in the case of flammable liquids such as denatured alcohol, are very news-worthy," the task force wrote.

Low frequency/high consequence events are always problematic. They pose the question of just how much money to spend to reduce the risk of an incident which is a remote possibility but could have catastrophic consequences if it occurs.

Unfortunately, the task force probably underestimated the frequency of derailments and spillages occur based on a small data set. It turns out that accidents involving ethanol and oil by rail are relatively high-frequency events, and therefore pose a much more substantial risk.

MORE TRAINS, MORE FIRES

The number of tank cars loaded with crude oil has risen 100-fold since 2006, according to the AAR, and there has been a similar surge in tank car originations of ethanol.

More tank cars are being loaded with crude and ethanol and travelling along more miles of track than ever before. As the number of barrel-miles travelled has grown exponentially, it is not surprising that risks have become more apparent.

The number of serious derailments and conflagrations involving ethanol and crude has increased alarmingly.

Between 2006 and 2011, a period of six years, almost 1.4 million tank cars travelled on the railroads loaded with ethanol, according to the task force. Just 163 (0.01 percent) were involved in derailments in 10 separate incidents.

In 2013, however, around 400,000 tank cars were loaded with crude oil in a single year, with almost as many originated with ethanol. Taking the derailment rate as 0.01 percent, around 70 tank cars will derail each year.

In the last seven months, there have been no fewer than four serious accidents:

- In July 2013, a unit train carrying crude derailed in Quebec, dozens of tank cars caught fire or exploded, killing over 40 people.

- In November 2013, 25 tank cars derailed and some caught fire in Alabama.

- In December, a crude train was involved in a collision in North Dakota, with several tank cars bursting into flames.

- In New Brunswick on Tuesday, five tank cars carrying crude and three containing propane derailed with at least some catching fire.

In addition, in October 2013, four tank cars carrying crude and nine carrying LPG derailed in Alberta and a fire was reported.

In 2011, there were two serious accidents involving ethanol trains, in Illinois (where 19 cars derailed and one person was killed in the resulting fireball) and Ohio (involving 18 tank cars and a giant fireball visible 15 miles away).

CONTAINMENT FAILURES

Crude and ethanol tank cars, of the type known as DOT-111, did not cause any of these accidents, but their failure to contain their flammable loads made the consequences much worse. In Illinois, more than half of the tank cars which derailed were breached, spilling some or all of their contents and catching on fire.

Railroads carry far more dangerous cargoes which could kill thousands of nearby residents in the event that they rupture, creating enormous potential liabilities. "Every time we pick up a carload of chlorine, we're placing a bet on the company," Norfolk Southern railroad chief executive Charles Moorman told the Wall Street Journal ("Fiery oil-train accidents raise railroad insurance worries" Jan 8).

But those travel in different tank cars built to DOT-105 and DOT-112 standards which are far less likely to rupture in the event of an accident.

"The fact that DOT-111 general service tank cars experience more serious damage in accidents than pressure tank cars, such as DOT-105 or the DOT-112 cars, can be attributed to the fact that pressure tank cars have thicker shells and head," according to the NTSB.

"The pressure cars are also usually equipped with metal jackets, head shields and strong protective housing for top fittings. They do not have bottom outlet valves, which have been proven to be prone to failure in the event of derailment," it added.

For this reason, the NTSB has recommended much tougher safety standards for all new and existing DOT-111 tank cars to ensure they retain their load in the event of an accident.

NEW CARS AND RETROFITS

The AAR and railroad operators have finally embraced these tougher standards, and called on PHMSA to mandate them for all new tank cars, as well as requiring an "aggressive" timetable for retrofitting or phasing out old tank cars which do not comply.

But railroads own few tank cars themselves. Most are owned by shippers and leasing companies.

We "continue to support ... the task force recommendations, which recommend no retrofit requirements for the existing fleet of tank cars carrying crude oil and ethanol," the American Petroleum Institute and the Renewable Fuels Association, among others, wrote to the PHMSA in September 2013.

"(We) do not wish to address the merits of any potential retrofit proposals," they wrote. "(We) do request that ... PHMSA initiate an expedited rulemaking on regulatory requirements for new tank car construction standards ... and address potential retrofits proposals at a later date in a separate rulemaking," they added, citing the need to move quickly.

The Railway Supply Institute, representing tank car owners and manufacturers, supports tougher standards for new cars but is also cautious about retrofits, and has requested a ten-year programme for modifying, re-purposing or retiring old DOT-111 tank cars so as not to "overwhelm the tank car maintenance and repair system."

"None of the high-profile derailments mentioned (in this rulemaking) would have been prevented by any of the recommended improvements to tank car designs," according to the institute. "The overall safety of hazardous transportation by rail cannot be achieved by placing the sole burden ... on the designs of tank cars."

"NTSB investigations determined that the probable cause for each of these accidents was attributable to railroad operating practices including track maintenance and track inspection programs," the institute wrote to PHMSA in December.

"(The institute) agrees that broken rails are an indisputable factor in the frequency of derailments and supports efforts to improve rail integrity throughout the entire North American system. A reduction in broken rails must be central to the effort to improve the safety of tank car operations," it added.

HOPING TO AVERT DISASTER

The current DOT-111s cannot all be retrofitted at once or withdrawn from service without massively disrupting the flow of oil from the shale regions to refineries, bringing the North American shale revolution to a temporary halt. There is an inevitable trade-off between safety, cost and convenience.

But the risks of unmodified DOT-111 tank cars are very real; it is only a matter of time before another fiery derailment. If it occurs in an densely inhabited urban area, the risks to life and property are considerable and the liabilities could easily bankrupt any rail operator or shipper found to be at fault.

Ten years is much too leisurely a pace to correct defects with existing DOT-111 tank cars. They need to be upgraded or removed from service far quicker. PHMSA should set a much more aggressive timetable for retrofitting, as well as working with railroad operators to enhance the safety precautions around trains carrying multiple tank cars.

Most railroads have already agreed to designate all trains carrying large volumes of ethanol or crude as "key trains" subject to stricter speed limits and other enhanced safety measures to reduce derailments.

In the meantime, as the old DOT-111s continue to trundle around the rail network, both the industry and regulators must hope derailments continue to be relatively small and occur in sparsely populated areas.

(Editing by Jason Neely)