Tag Archives: Union Tank Car Co.

CPC-1232, Crude By Rail, DOT-111, Federal Regulation (U.S.), Pressure tank cars, Rail Safety, Tank car design, Tank car manufacture, Tank car retrofit

Tesoro & Phillips 66 building crude railcars stronger than new US rules require

Repost from Reuters
[Editor:  These tank cars exceed the new standard, but still fail on several counts.  For instance, note the closing sentences here: “Hack said Tesoro is talking with Union Tank Car on possibly outfitting crude railcars to add enhanced brakes before the 2021 deadline.  ‘We have some time to make that decision,’ he said.”  You can be sure that every refinery seeking permits for crude by rail will crow that they, too, have ordered newer, safer tank cars.  Get ready, Benicia!   – RS]

EXCLUSIVE-Tesoro building crude railcars stronger than new US rules require

By Kristin Hayes, May 18, 2015 4:59pm BST

(Reuters) – U.S. refiner Tesoro Corp has ordered new crude oil railcars with features that surpass safety standards that federal regulators set this month, executives told Reuters.

The 210 tank cars being built in northern Louisiana are so-called pressure cars, with the same design as those that carry liquid petroleum gases such as propane and butane, gas cargoes that are more flammable than crude oil.

They will be delivered in the coming months after being ordered in early 2014.

The new federal rules for all crude and ethanol railcars built after Oct. 1 of this year do not require strength to the level of a pressure car but are stronger than the standards adopted by the industry in 2011.

Tesoro, like other oil-by-rail players, knew the federal standards were coming and the basics of what they would likely be. But the company went further with a stronger car, “which is the primary thing we control,” C.J. Warner, Tesoro’s head of strategy and business development, told Reuters.

The order was a sign the refiner wanted to get ahead of the coming regulations and avoid potential capacity bottlenecks at companies that build tank cars as shippers must now renovate their fleets.

Booming North American onshore production spurred sharp growth in moving oil by rail, particularly for U.S. West and East coast refiners which otherwise must depend on more costly imports. No major crude pipelines move oil from the Midcontinent west across the Rocky Mountains or east through the Appalachians and densely populated northeastern states.

Fiery derailments, caused in some cases by track failures, have become more frequent as oil-by-rail and crude-only trains carrying 100 cars or more went from nearly nothing five years ago to more than 1 million barrels per day late last year.

Opposition to moving oil by rail spiked on safety concerns, prompting the U.S. Department of Transportation and Canada to impose new railcar safety standards.

Tesoro isn’t the only refiner that didn’t wait for word from the U.S. DOT to order stronger cars.

Phillips 66 confirmed to Reuters that it also last year ordered 350 non-pressurized new cars that mostly match the new DOT standard. Those cars will be delivered by year-end, the company said.

THICKER HULLS

Both sets of new cars have 9/16-inch-thick hulls, steel shields on the front and back and protections for valves and fittings where crude goes in on top and drains out the bottom, as the new rules require, company executives said. Tesoro’s design modifies those fittings to handle crude rather than just LPGs.

Tesoro’s cars also have test pressure specifications of 200 pounds per square inch of internal pressure, twice that for non-pressurized cars. A test pressure is typically 20 to 40 percent of how much pressure it would take for the railcar to burst.

That level of test pressure is standard for cars that transport LPGs or highly poisonous substances such as hydrogen cyanide, according to the Association of American Railroads.

“When we saw the design, we were very comfortable that it would meet the new standards that we anticipated,” John Hack, Tesoro’s head of rail operations, told Reuters.

For Tesoro, which hopes to build the largest oil-by-rail facility in the United States in Washington state, it’s an investment in safety and continued access to cheaper North American crudes.

“It’s very important to us to continue to transport North American crude and get it from the Midcontinent out to the West Coast where it competes very nicely with the foreign crudes,” Warner said.

RETROFITS?

By last year most refiners, including Tesoro and Phillips 66, no longer accepted shipments in older, weaker railcars such as those used on a runaway crude train that careened into the small Quebec town of Lac Megantic in mid-2013, killing 47 people.

Early last year Tesoro needed to replace the last of its older cars and worked with its builder, Berkshire Hathaway Inc’s Union Tank Car, to develop the new design, Warner said.

Tesoro and Phillips 66 aim to use their newest cars in crude trains before deciding whether to order more. Both companies’ fleets meet the 2011 industry standard for cars with 7/16-inch-thick hulls and reinforced valves.

Those 7/16-inch cars don’t have to be thrown out, but to move in crude-only trains, they will need added protections, including ‘jackets’, or an extra layer of steel around the tank, according to the DOT rules.

Neither Tesoro’s nor Phillips 66’s new cars are equipped with specialized brakes that the DOT said crude-only trains must have starting in 2021 or be held to 30 miles per hour. An oil industry trade group is challenging that provision in court.

Hack said Tesoro is talking with Union Tank Car on possibly outfitting crude railcars to add enhanced brakes before the 2021 deadline.

“We have some time to make that decision,” he said.

(Reporting by Kristen Hays; Editing by Terry Wade and James Dalgleish)
Bakken Crude, DOT-111, Federal Regulation (U.S.), Oil Industry, Oil prices, Rail industry, Tank car manufacture, Tank car retirement, Tank car retrofit

Rail Tank-Car Orders Threatened by U.S. Crude’s Collapse

Repost from Bloomberg News

Rail Tank-Car Orders Threatened by U.S. Crude’s Collapse

By Katherine Chiglinsky, January 22, 2015

(Bloomberg) — Add tank-car makers to the list of U.S. industries bracing for the effects from the plunge in crude prices.While 2014’s record orders, including an all-time high 42,900 in the third quarter, will drive deliveries this year, according to Susquehanna International Group, manufacturers from Carl Icahn’s American Railcar Industries Inc. to Warren Buffett’s Union Tank Car Co. are facing a decline. New bookings in 2015 may plunge 70 percent, Macquarie Capital USA Inc. said, putting earnings at risk when scheduled deliveries drop in 2016.

Oil prices down 49 percent since June have crimped investment in U.S. fields including the Bakken range, where horizontal drilling and hydraulic fracturing is more expensive than conventional oil drilling. That has hurt industries from steel to heavy equipment. It also has slowed the boom in oil-by-rail shipping, which along with new federal safety rules, had fueled the record orders.

“The confidence of the industry has been shaken quite seriously,” Cleo Zagrean, a New York-based analyst for Macquarie Capital said by phone Jan. 15.

Tank-car maker stocks have suffered amid the oil price decline, with shares of Trinity Industries Inc. dropping 40 percent in the fourth quarter, according to data compiled by Bloomberg. American Railcar shares fell 30 percent and Greenbrier Cos. dropped 27 percent.

“It’s having an impact already,” said Art Hatfield, a managing director of equity research at Raymond James & Associates Inc. in Memphis, Tennessee. “I think the forward-looking minds are realizing that we may have hit a cyclical peak within the industry.”

New freight-car orders fell to 37,431 in the fourth quarter, down 13 percent from record highs, according to data from the Railway Supply Institute, reported Thursday. Leasing company GATX Corp.’s deal with Trinity added 8,950 new car orders in the fourth quarter. Those cars will be delivered over a four-year period beginning March 2016.

Backlogs swelled to a record 142,837 orders the Washington-based RSI said. These may bolster the industry through 2015.

Throughout last year, buyers piled on requests for cars amid an oil boom in North Dakota and Texas. Freight-car bookings and backlogs swelled to record highs even as West Texas Intermediate crude oil prices fell 14 percent between July and the end of September, according to data compiled by Bloomberg.

Orders for cars that carry cement and frac sand, a resource instrumental in the U.S. shale boom, declined in the fourth quarter from a record, according to Bascome Majors, an Atlanta-based transportation and rail-equipment analyst for Susquehanna International. Falling oil prices might temper future demand for frac-sand cars, he said.

Significant Hit

Oil prices tumbled 18 percent in November and 19 percent the next month, ending the year with the steepest monthly loss in six years, data compiled by Bloomberg show.

“The oil price drop is a significant hit” to the tank-car industry, Macquarie’s Zagrean said. As customers re-evaluate the cost of new cars, even extensions on orders can weaken manufacturers’ earnings, she said.

Freight-car producer Greenbrier has dodged order cancellations as oil prices fell. Only one customer approached the company about canceling an order but has yet to call the deal off, William Furman, chief executive officer, said in a conference call Jan. 7.

Trinity had not seen any “appreciable impact” on its business from the low oil prices in the third quarter, Stephen Menzies, group president of the company’s rail and railcar leasing group, said in an earnings call October 29. The company stands by those comments, spokesman Jack Todd said in a Jan. 21 e-mail.

Union Tank Car spokesman Bruce Winslow declined to comment on the company’s orders. GATX’s director of investor relations Jennifer Van Aken didn’t return phone calls seeking comment.

In addition to concerns that low oil prices will threaten demand, the industry faces new regulations spurred by accidents including the July 2013 derailment and explosion in Lac-Megantic, Quebec, that killed 47 people.

Phase Out

The U.S. Pipeline and Hazardous Materials Administration plans to issue rules to phase out older rail cars that carry crude in the coming month, Susan Lagana, a PHMSA spokeswoman, wrote in an e-mailed statement Jan. 15. The type of tank car most implicated in spills, known as the DOT-111, would be phased out or rebuilt to meet the new standards within two years for the most volatile crude oil, according to the proposal.

New rules may create “quite a lot of replacement demand,” Greenbrier CEO Furman said in the earnings call. Currently, the Lake Oswego, Oregon-based company’s tank-car orders comprise just slightly more than a quarter of its backlog, according to company spokesman Jack Isselmann.

Owners are expected to scrap more than a fifth of an estimated 117,000 tankers that would require modifications. The work, which may include adding full height steel shields at the ends and adding a metal jacket around the body, is estimated to cost between $27,000 and $46,700 per car, an RSI study said.

Safety Concerns

BNSF Railway Co., which like Union Tank Car is owned by Buffett’s Berkshire Hathaway Inc., delayed an order of 5,000 new and safer oil-tank cars until the new safety standards are set. The railroad said last year that it would buy the new cars because of safety concerns even though railroads typically don’t own the cars that their locomotives haul on the track.

Many of the orders for safer tank cars might already be included in the backlog as buyers line up in anticipation, Hatfield of Raymond James said.

“This industry has really earned a lot of money in the last few years due to this tank-car boom and when that goes away, it’s going to have an impact on peoples’ businesses,” he said.