Companies that make tanker cars for shipping oil across the country fear they are being railroaded by the Department of Transportation.
It’s given them until October 2017 to make 23,000 older tankers safer or else face being banned from using them to ship flammable crude from wells to refineries. Thousands of newer cars would also have to be upgraded.
The companies say there isn’t time and they stand to lose a lot of business.
“Based on what we’re hearing in these shops on retrofits, I don’t know how they can get this done in three years. It’s a tall, tall task,” an energy industry source told the Washington Examiner.
The volume of oil being carried around the country has risen sharply as shale production turned from trickle to spate. In 2009, there were 10,800 carloads carrying the grade of crude produced by the Bakken shale formation in Montana and North Dakota. Last year, the number had jumped to more than 400,000, according to the Transportation Department.
Growth is not risk-free. A series of derailments, including a July 2013 explosion that killed 47 people in Lac-Megantic, Quebec, drew public and political attention to the new way crude was getting to market. It also threw light on how flammable the oil was compared with other varieties. Democratic and Republican lawmakers pressed the DOT to improve tank standards quickly to avoid another catastrophe.
Despite worries about hitting the deadline, complying with the regulations, which DOT floated July 23, is a profitable problem for the rail car industry. Between July 1 and Sept. 9, three of the top publicly traded firms, Greenbrier Companies, American Railcar Industries and Trinity Industries, saw their stock prices rise by 20.8 percent, 14.4 percent and 9.8 percent, respectively.
Phasing out by 2017 the “legacy” DOT-111 tankers that ship crude from the Bakken is “aggressive,” but achievable, said Jack Isselmann, a spokesman at Greenbrier Companies.
DOT officials say they’re aware of the concerns.
“That is part of our seeking comment from the industry, from the public, from anyone,” DOT Pipeline and Hazardous Materials Safety Administration Deputy Administrator Timothy Butters said during a Wednesday House hearing. “There is a number of proposals within the proposed rule that address the time frame.”
With the clock ticking, the industry also is confused about what the new standards for the rail cars will be, so they have hesitated to start building new cars and retrofitting old ones. The proposed standards have varying speed restrictions, braking mechanisms and shell-thickness requirements.
Additionally, manufacturers already have an estimated 18-month backlog for cars that meet industry standards approved in 2011. Nearly 53,000 rail cars had been ordered but not finished as of July 1, though not all will be used to transport crude, according to Tom Simpson, president of industry group the Railway Supply Institute.
And while the Transportation Department thinks it is helping shippers by allowing retrofits, many in the industry say upgrades would take longer than buying new cars. Retrofitting would cost less. The feds estimate retrofits would cost $35,000 per car, though the companies say it’s nearer to $60,000, while buying new ones can cost $150,000 each. But relying on retrofits, which take longer, could lead to a supply crunch.
“It takes less people-hours to build a new car than it does to take a car apart and put it back together,” Brigham McCown, a former DOT Pipelines and Hazardous Materials Safety Administration chief during George W. Bush’s administration, told the Washington Examiner, adding that the DOT proposal includes “completely inaccurate assumptions on the time it takes to make and retrofit cars.”
The Railway Supply Institute isn’t saying whether the schedule is feasible. Simpson told the Examiner that his assessment of the industry’s readiness won’t be done until the comment period for the proposed rules closes Sept. 30.
“We’re looking at the size of the fleet, we’re looking at the shop capabilities, we’re looking at the number of cars that might be available to be modified, we’re looking at what can be done to modify the cars to satisfy the department,” Simpson said.
Sen. John Hoeven, R-N.D., said there may be some flexibility to ensure manufacturers can actually make and retrofit railcars.
He suggested allowing some of the 19,000 cars that conform to the recently adopted industry standards — but which probably would still have to undergo upgrades, such as installing thicker shells — to operate at lower speeds until manufacturers can retrofit some of the older tankers that would not be allowed to carry Bakken crude unless upgraded.
“That’s what they need in order to have the manufacturing capacity to get all the retrofits done within the timeline provided by the regulators,” Hoeven told the Examiner. “So I think that’s the dialogue you’re going to see.”
McCown said that between 30 to 40 percent of the fleet of the older tankers could face immediate retirement.
With the comment period closing at the end of the month and finalization still a year away, railcar manufacturers contend they’re stuck in limbo even as the deadline for complying with the rule draws nearer.
“We’re trying to anticipate … where this is going to be, where this finishes,” said Jeff Hollister, president of railcar manufacturer American Railcar Industries.
