The Safest Route

Rail industry perspective on the changing crude-by-rail transport option from BNSF, the Association of American Railroads, and Watco, a company planning a railcar retrofit facility near South Heart, N.D.
By Luke Geiver | March 18, 2014

Since 2008, the number of crude-carrying railcars in the U.S. has risen from 9,500 crude carloads per year to over 415,000.  Shale energy development, particularly from the Bakken and Three Forks shale plays, has been the main cause for the increase. Currently, more than 70 percent of all North Dakota-based crude is shipped to refiners via rail, and, every day approximately 800,000 barrels of oil are moved with rail.  One tank car holds about 30,000 gallons, or 714 barrels of oil. More than 99 percent of all carloads carrying crude reach their destinations without a release caused by an accident, according to the Association of American Railroads. Because of the serious implications related to that remaining 1 percent, however, the way Bakken crude is handled, classified and transported from the well site to the refiner is in the midst of change. For every operator, association, community or business linked to the Bakken-by-rail industry, changes to the process will create new and different factors in need of attention.

The Changes
Accepted railcar design and prerail crude classification protocols are the main issues facing everyone involved with the Bakken crude-via-rail industry. The U.S. Department of Transportation recently issued an Emergency Order requiring all shippers to test product from the Bakken before it is transported to ensure the crude is transported in the proper packing group. The DOT uses nine different hazard classes as a guide to properly classify each material, and the material type determines one of three possible packing groups.

The recent DOT-issued order also stated that all Class III crude oil shipments need to be designated as Packing Group I or II, requiring the use of a more robust tank car. Packing Group III will no longer be available. The classification testing will include characterization of elements in the crude such as Reid Vapor Pressure, corrosivity, hydrogen sulfide content and the composition or concentration of entrained gases, according to the U.S. Pipeline and Hazard Materials Safety Administration. During its data gathering efforts aimed at depicting the way operators or those offering oil to the rail industry for shipment are classifying crude for shipment, the PHMSA inspected various points along the crude oil transportation chain. The testing took place in areas from the cargo tanks to rail loading facilities to the pipelines connected to crude-by-rail loading facilities. Of the 18 samples collected from cargo tanks delivering crude oil to the rail loading facilities, the PHMSA said 11 tanks of crude were improperly classified.
Joe Delcambre, public affairs specialist for PHMSA, says that crude classification tests have to take place before the crude is put into transportation. Shortly after announcing the emergency order, the PHMSA organized workshops in North Dakota for anyone who fills, marks, labels, placards, creates shipping documents, offers, transports or manufactures packaging for hazardous materials in commerce. The workshops focused on requirements by PHMSA regarding transporting hazardous materials including training requirements, packaging, hazard communications and security, according to Delcambre. 

For Ed Hamberger, president and CEO of the AAR, the big unknown in the Bakken and the rail industry right now is the mitigation, or those crude classification efforts taking place. The process is still being vetted and understood by portions of the supply chain. The DOT is working with the industry and oil producers to ensure proper classification, he says, as evidenced by the workshops. Three Bakken operators—Hess Corp., Whiting Petroleum Corp. and Marathon Oil Corp.—were cited for improperly classifying crude during the PHMSA’s efforts to verify testing methods used by the industry.

Hamberger is working with oil and crude pipeline representatives to make the transport of crude oil safer than it already is, he says. “The rail industry is safe and we are doing everything we can to become even safer,” he says, “We understand that in the public’s mind there is a little bit of shaken confidence.” Speaking on behalf of the railroad industry, Hamberger has recently provided testimony before the U.S. Senate and House on the topic of railroad safety, including crude-by-rail safety.

Among many topics he has testified on, railcar standards has been a major area for those impacted by crude-by-rail in the Bakken. Currently, DOT-111 tank cars, or the workhorses of the industry, according to Hamberger, are facing major change. The AAR has proposed a new standard design for hazardous material capable cars and also the elimination of DOT-111 cars for crude transport. The new standard created by AAR and currently under consideration by the DOT, would include a double hull featuring a layer of nine-sixteenth-inch steel surrounded by a one-eighth-inch-steel jacket. A full-height heat shield would be included at both ends of the car, and between both layers of steel, thermal insulation would be added. If a breach does occur and results in a fire, he says, the car next to it that wasn’t breached would be able to withstand the heat as new pressure relief valves allow the car to vent out the crude as it becomes a gas.

For BNSF, one of the main rail operators in the Bakken play, the potential railcar changes and classification efforts put forth by the DOT are welcome. BNSF does not actually own any of the railcars used on its lines, says Amy McBeth, spokesperson for BNSF.
Like Hamberger, BNSF has worked with state and federal officials to ensure rail safety, McBeth says. To help advance the development of the next generation of tank car, the rail giant has also issued a request for proposal to all major railcar manufacturers to submit bids for the construction of 5,000 next generation cars suitable for transporting crude oil. There is currently a two-year backlog for new railcar construction. The RFP “represents a significant voluntary commitment that may help accelerate the transition to the next generation tank car and provide tank car builders a head start on tank car design and production,” McBeth says, “even as the DOT, railroads and shippers continue to engage in the formal rulemaking process. BNSF believes that the RFP process will provide market participants more certainty, sooner.”

The Retrofit Option
Although many in the rail industry believe tank car changes are coming, there is no definitive date for the tank car changes on new cars to take effect, or, for DOT-111 cars to be officially eliminated from the crude-by-railcar fleet, Hamberger says. Watco Terminal and Port Services recognize the lack of timeline for new regulations, and also the reality that change is coming. The company has partnered with Great Northern Project Development to build and operate a multi-purpose rail transload and car retrofitting facility 12 miles from Dickinson, N.D. The retrofit facility will be the first of its kind in the Williston Basin region.

Mike Yanish, business development manager for Watco, says the basic idea behind the facility is to open another crude loading facility in the region that could also handle products such as sand, pipe and any other oilfield related product in demand. In addition to the traditional transloading capabilities, the team also wants to develop a space large enough to house railcars in need of retrofit. “With the lack of rail shops out there, it really hit home with us,” Yanish says, “why not have one in the heart of the activity?”

The railcar facility, set to break ground this spring, will service tank car owners or lessees. The service package will include tank car inspections, testing qualifications, preventative maintenance, painting, lining and retrofitting. The shop will be a full service Class C facility. “We understand the need for this type of service in the area to avoid shipping cars long distances and losing extensive days in transit from other shops,” Yanish says. “We plan to focus on a scheduling process with dedicated capacity for the customers who purchase time slots and turn cars around in a 30-day cycle from arrival to departure.”

Yanish and the Watco team are excited to be a part of a safer crude-by-rail industry, he says, as many on the team live and work in the region. Railcar companies have shown great interest in the facility because of its geographical location. Cars won’t have to travel to Louisiana or Texas, a trek that would keep the cars out of service for months at a time, Yanish says. Hamberger says the retrofit option is feasible. Any changes to the crude-by-rail transport method will only effect throughput and velocity of the overall rail network, he adds. “I think it can all be accommodated,” he says, citing the private investment the rail industry has already put into infrastructure.

With more than 70,000 railcars potentially needing retrofit and the long-term oil development linked to the Bakken and even the oil sands of Canada, Yanish says the South Heart, N.D.-facility will be in demand for a long time. The facility won’t be the first for Watco, either. The company has a large presence in the mechanical repair area, including an entire division that works on railcar repair.

Like Hamberger and McBeth, Yanish says his company is working effectively with regulators to make a transition to a safer crude-by-rail industry possible, an industry that Hamberger says the rail industry clearly recognizes as only one of the many solutions to moving crude. “We are a necessary but not sufficient piece to keep moving this crude,” he says. The mantra adopted by the DOT on energy, one that calls for an all-of-the-above approach, is the same mantra that should be applied to crude transport.

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Author: Luke Geiver
Managing Editor, The Bakken magazine
lgeiver@bbiinternational.com
701-738-4944