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Industry balking at latest oil train safety rules


Industry experts are critical of a new U.S. rule on railroads concerning safely transporting flammable liquids, including the Bakken crude blamed in part for the Lac-Mégantic, Quebec, explosion and fire two years ago that killed dozens and leveled much of the town.

Meanwhile, one of the railroad agencies involved in the crash in Canada continues to object to a settlement in the case.

The U.S. rule, developed by the Pipeline and Hazardous Materials Safety Administration and Federal Railroad Administration in coordination with officials in Canada, went into effect July 7. It aims to prevent accidents, mitigate consequences when there is an accident and support emergency response efforts, according to the U.S. Department of Transportation.

The changes include an enhanced tank car standard; a retrofitting schedule for older tank cars that carry crude oil and ethanol; a new braking standard for certain trains; operational protocols for trains moving large volumes of flammable liquids such as routing requirements, speed restrictions and providing information to local agencies; and new testing requirements for transported energy products.

But industry experts aren't convinced.

“We were a little disappointed with the focus of the recent rule that came out from the Department of Transportation” on May 1, said Robin Rorick, Washington-based director of midstream operations at the American Petroleum Institute.

“Anytime you slam a tank car going 40 to 60 mph into something, then something is going to break,” said Joe Connelly, Baltimore-based senior consultant and operations manager of hazardous materials and transportation at Specialty Transportation & Regulatory Services. “When you look for the root cause of these accidents, none of them were the tank car itself. They were due to a maintenance problem.”

Even the Federal Railroad Administration said it's not possible to build a tank car strong enough to withstand punctures when they're moving 30 to 40 mph.

Those rules had an addition last week, when the federal rail agency imposed an immediate requirement that two people assure that brakes on unattended trains are set properly — the lack of which allowed the train to roll downhill into Lac-Mégantic in 2013.

Since then, more than a dozen trains transporting crude oil have derailed in North America, causing Canada to impose new rules effective June 19 that require railroads to carry minimum levels of insurance.

But the new U.S. rail rules do not require railroads to have insurance coverage minimums.

Railroad industry leaders earlier had testified before Congress that they know a rail accident involving flammable cargo can cause billions of dollars' worth of damage in a major city, but insurers do not provide enough capacity to cover such a disaster, said Fred Millar, an Arlington, Virginia-based transportation safety consultant.

In October, American International Group Inc. increased liability limits for U.S. and Canadian Class I railroads to $1 billion per occurrence, with $1.5 billion in underlying limits.

“Class 1 railroads are seeing strong growth and a resulting increase in risks they need to cover. The additional limits AIG is providing can help them protect their balance sheets. AIG is one of the few carriers that has the large limits,” Russell Johnson, New York-based president of casualty Americas at AIG, said in an email.

The issue has grown in importance as the U.S. oil industry has boomed.

Crude oil rail transport increased to 493,146 carloads in 2014 from 9,500 in 2008, according to the Association of American Railroads.

“Seventy percent of crude coming out of the Bakken area is moved by rail because there is no robust set of pipelines that exists out there,” Mr. Rorick said.

The 2015 first quarter saw a decline in rail transports because of a surplus created from other countries' economic difficulties, but once the surplus is gone, movement of oil by rail is expected to go back up, according to the Association of American Railroads.

Still, heavy usage of the rails increases the need for more frequent inspections and repairs, and some insurers offer to help their rail clients.

“We have a service called 'walking the rail,' where we provide a second pair of eyes for the railroad. It's an opportunity to have another set of eyes to see a problem someone may not have seen and helps railroads prevent accidents,” said Ron Mathewson, Parsippany, New Jersey-based vice president of specialty railroad products at Zurich North America, which offers $25 million excess liability limit per occurrence.

Zurich also offers media crisis management services to short-line, non-Class I railroads that may not have their own media departments, Mr. Mathewson said.

The risk looks to continue, but experts say mitigating the aftermath is part of the risk management process.

“We believe the best way to manage incidents are to prevent them from happening in the first place and, when they do occur, to make sure we have the proper mitigation and response mechanisms in place to address the incidents,” Mr. Rorick said.

Since many areas have not had much exposure to crude oil, the American Petroleum Institute has worked with the rail industry to set up a free portal for first responders to help them learn what to expect, Mr. Rorick said.

The new rules for improved rail cars have until 2025 to be implemented.

“We're keeping our eyes on the current movements on the regulations and taking a wait-and-see-approach to see how these (new) cars will react in a derailment situation,” Mr. Mathewson said.