Repost from Platt McGraw Hill Financial – The Barrel

Regulation & Environment: Canada’s aggressive on crude oil by rail regs; the US, not so much

By Herman Wang | June 9, 2014

It has been 338 days since the explosive derailment of a train carrying crude oil killed 47 people in Lac-Mégantic, Quebec.

Meanwhile, 227 days have passed since an oil train derailed and exploded in Alabama, spilling 750,000 gallons of crude, and 161 days since another oil train ignited in North Dakota, spilling 400,000 gallons and forcing the evacuation of the town of Casselton.

And yet, despite these and several other recent accidents attributed to the spike in North American crude-by-rail traffic, US officials have yet to publicly unveil any new comprehensive safety regulations and tank car specifications. Those rules are not likely to be revealed until later this summer—and possibly not finalized until year’s end—thanks to the US’ lengthy, consultative rulemaking process.

That puts the US far behind Canada, which typically follows the US’ lead on rail regulations.

Canada on April 23 set an aggressive deadline of May 2017 for the total removal or retrofit of all legacy DOT-111 tank cars used to ship crude oil and ethanol from Western Canada to refineries and also ordered the immediate removal of 5,000 “substandard” tank cars without continuous bottom-level protection layers.

Canada was able to move relatively quickly on its crude-by-rail safety rules because of a requirement that the government respond within 90 days to any recommendation by the country’s investigatory Transportation Safety Board, which in January had called for more stringent DOT-111 standards in the wake of the Lac-Mégantic accident.

The US has no such requirement, and despite the US National Transportation Safety Board having recommended since 2012 more robust tank car requirements, regulators are still muddling through their rulemaking, much to the dismay of safety advocates who would like to see quicker action. About 650,000 carloads of crude are expected to be shipped by rail in 2014, according to the rail industry, compared to just 9,500 carloads in 2008.

The US Department of Transportation on April 30 did submit a crude-by-rail rulemaking package, including tank car specifications, to the White House Office of Information and Regulatory Affairs for review, but no details of the regulations are publicly available, leading to much speculation on what they might contain.

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The White House, under processes outlined in the Administrative Procedure Act, typically reviews “significant” regulations for up to 90 days, including performing an economic analysis. The DOT estimates that the crude-by-rail review will conclude by mid-July, at which time, the DOT would unveil the draft proposal in the publicly viewable Federal Register.

A 60-day public comment period would follow, after which the DOT may incorporate some of those comments into a final rule. That final rule would then be submitted to the White House for another review, before it is finalized, published in the Federal Register and made effective.

The intent of the exhaustive US rulemaking system is to gather as much stakeholder input as possible and to allow for careful cost-benefit analyses and alternative solutions to be explored, inefficient though the process may be. And it is not unheard of for controversial rulemakings to be mysteriously delayed until a less politically sensitive time, such as after an election has passed.

For crude-by-rail, the regulations look on pace to be finalized by the end of the year or perhaps early 2015, though DOT officials have pledged to accelerate that timetable. In the meantime, the DOT has issued a handful of orders regarding speed limits for oil trains, routing protocol and proper classification of crude oil cargoes.

“We’re working as hard as we can to get the rule out as soon as possible,” Cynthia Quarterman, the head of the DOT’s Pipelines and Hazardous Materials Safety Administration, testified at a Senate Commerce, Science and Transportation Committee hearing last week.

Pressed by lawmakers on whether the US would match Canada’s phase-out of legacy DOT-111 tank cars, she responded: “Canada has the advantage of being able to say in a public forum that they can remove those cars in three years. Because we have a rulemaking, we can not say anything comparable on the record until it goes through the rulemaking process.”

But, in perhaps a hint to what the rules may contain, she added that US officials are working closely with their Canadian counterparts and that “we applaud their move to remove the DOT-111s in three years time.”

Should the US require a similar fast-track phase-out schedule for DOT-111 tank cars, the oil industry is sure to be upset, as it has warned of potential shortages in tank cars and limited capacity to build new ones.

But speculation will remain speculation, until the White House finishes its review of the DOT proposal.

— Herman Wang in Washington