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Tanker crashes renew call for federal scrutiny of rail safety

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The derailment and explosion of an oil tanker train in West Virginia last month has revived calls for greater train safety measures, but this and other recent accidents are having little effect on the rail insurance market.

The Feb. 16 derailment of 27 crude oil tanker cars from a 109-car CSX Corp. train about 30 miles southeast of Charleston, West Virginia, triggered an explosion and fire and forced the evacuation of about 1,000 people, but caused no injuries. Two days earlier, a Canadian National Railway Co. train derailed 29 tanker cars in rural northern Ontario, sparking a fire but again causing no injuries.

Both trains featured upgraded versions of the type of tank car involved in the 2013 Lac Megantic, Quebec, disaster, in which an out-of-control oil train derailed and exploded near the center of town, killing 47 people.

The rail industry and safety advocates are awaiting new U.S. Department of Transportation rules on tank car construction and other train safety features, expected in May. Safety advocates and energy companies also are debating whether shale oil from the Bakken formation in North Dakota — involved in both the West Virginia and Lac Megantic accidents — should be treated to reduce its volatility.

While rail insurers are watching these developments, the latest accident and questions about Bakken crude volatility aren't affecting the market, sources say.

“Underwriters are satisfying themselves with education (about the exposure) as opposed to staying away from the risk,” said James R. Beardsley, global rail practice leader with Marsh L.L.C. in Washington.

Since Lac Megantic, “the underwriting community delves a little deeper into the potential and consequences of derailments involving trains carrying crude,” said Nicholas J. Bayliss, vice president and railroad segment leader with Gemini Transportation Underwriters, a W. R. Berkley unit, in Boston.

The seven large Class I railroads, including CSX, have liability self-insured retentions of up to $50 million per occurrence, meaning that only large incidents would hit insurance programs.

The railroads generally carry between $1 billion and $1.5 billion in liability limits, insurance sources say, and the market for the coverage is expanding. Marsh L.L.C. is finalizing a program underwritten by Bermuda and other insurers that will provide $1 billion in coverage excess of currently available limits of up to $1.5 billion. AIG's Lexington Insurance Co. last year announced a similar program to provide $1 billion in rail liability limits excess of $1.5 billion in underlying coverage.

The risk has increased with the rapid growth of rail shipments of Bakken crude oil. Bakken production, which began in 2006, rocketed to a yearly total of about 345 million barrels in 2014, according to North Dakota government figures. Most has been shipped by rail rather than pipeline, with rail volume expected to hit about 800,000 barrels per day in 2015 and 2016, according to PLG Consulting, a Chicago-based logistics and engineering firm.

The Lac Megantic disaster focused attention on the safety of the older DOT-111 tank cars involved in the accident, and many shippers have since upgraded to cars designated CPC-1232, which have more steel shielding.

But last month's West Virginia and Ontario accidents both involved CPC-1232 cars, raising questions about their safety as well.

The transportation department's Pipeline and Hazardous Materials Safety Administration is expected in May to announce new specifications for tank cars built after Oct. 1, 2015. Many rail industry experts expect the hazardous materials safety administration to choose a design developed by the Association of American Railroads that has a thicker steel shell than the CPC-1232 and other safety features, said Taylor Robinson, president of PLG Consulting.

That design “seems to be what everyone is betting on, but no one's sure,” Mr. Robinson said.

The long-delayed hazardous materials safety administration rules, in the works since 2012, also may require:

• Railroads to perform routing analyses to find the safest route for oil trains.

• Written sampling and testing programs to properly characterize oil and gas cargoes.

• Enhanced braking systems.

The volatility of Bakken crude has become another subject of debate. Like other shale oil, Bakken oil contains natural gas liquids such as ethane and propane that produce vapor pressure during transportation. Federal investigators are looking at the possibility that excessive vapor pressure contributed to the explosion of the CSX train in West Virginia, Reuters reported.

The North Dakota Industrial Commission last December ordered energy companies to “condition” shale oil starting April 1, a process that uses heat to reduce vapor pressure. Safety advocates, however, say that the oil should be “stabilized,” a process in which natural gas liquids are separated before shipment.

“Conditioning crude oil is not enough — the dangers of transporting highly flammable, volatile crude across the country are too great,” New York State Democratic Assemblyman Phil Steck wrote in a Feb. 20 letter to transportation department Secretary Anthony Foxx.

Oil trains pass through Mr. Steck's district, which includes Schenectady.

Railroads and oil shippers have been lucky so far that — with the exception of Lac Megantic — accidents have mostly occurred in lightly populated rural areas, Mr. Beardsley said. Oil shipments are likely to get safer as experience with them grows, he said.

That doesn't mean that serious accidents won't happen, though. In a cost/benefit analysis of its proposed safety rules, the hazardous materials safety administration projected — absent the effect of the rules — that there will be 15 mainline derailments this year, falling to five derailments by 2034. At the high end of its assumptions, the group projected nine accidents producing more than $1.15 billion in personal and environmental liabilities each and one producing more than $5.75 billion in losses over the next 20 years.