(Updates with GATX statement in 14th paragraph.)
July 3 (Bloomberg) -- When Aurora Mayor Tom Weisner sees rail cars full of crude oil rumble down the tracks that criss- cross his Chicago-area town, he often thinks about the derailment that killed 47 people almost a year ago in Canada.
The disaster focused attention on the design of the oil tankers, yet two-thirds of the tank cars in use today are still older models that safety experts say are vulnerable to puncture. The July 6 derailment in Quebec and seven other major ones in the U.S. and Canada since then have spilled more than 3 million gallons of oil, with some cars catching fire or exploding.
“You can see tanker car after tanker car go by on that rail constantly,” said Weisner, whose city is 40 miles (64 kilometers) southwest of Chicago and second to it in population in Illinois.
“Our regulators have got to figure out whether they’re working in the interest of the American people or the oil industry.” Weisner is co-chairman of the TRAC coalition, a group of communities that are lobbying for rail safety enhancements, including sturdier cars.
Tank car owners like GATX Corp. disagree with some of the proposals to strengthen or phase out the cars quickly while railroads including BNSF Railway Co. balk at slowing train speeds. That means the trains keep barreling ahead, hauling the booming production of North Dakota -- where daily output has surged in eight years to 937,000 barrels from 4,300 barrels -- through Aurora and other cities.
Transport Canada mandated in April a three-year phase-out of tank cars ordered before October 2011, when the industry improved car design to include steel shields at the ends and protection for valves on the top. The agency also banned immediately tank cars that have weak underbelly support, those built before the mid-1990s, from carrying dangerous goods.
In the U.S., the Department of Transportation drafted regulations that are projected to include higher standards for tank cars and may throttle train speeds. Secretary Anthony Foxx has said the goal is to have the rules in place by the end of this year.
Some members of Congress are pressing the administration to move more quickly. At a rail-safety hearing in April, Senator Susan Collins, a Maine Republican, said it was frustrating that Foxx couldn’t provide the date it would release new tank car standards, years after warnings from federal safety investigators that the DOT-111s cars were prone to rupture in an accident. “After all, this isn’t a new issue to DOT,” Collins, the top Republican on the Senate transportation appropriations subcommittee, said.
“We’re seeing exponential growth in the transport of crude oil by rail in this country,” Foxx said in Washington on July 1 at a breakfast sponsored by the Christian Science Monitor. “It requires us to step up our level of safety as a nation.”
Peter Goelz, a former managing director of the National Transportation Safety Board, the federal agency that investigates crashes, said the administration may be reluctant to phase out the older versions of the DOT-111s out of fear of slowing the U.S. energy boom.
“This could have been done more quickly,” Goelz said in an interview. “I’m puzzled by how long it’s taken to move on rail cars.’”
The Transportation Department in February reached an agreement to slow oil trains to 40 miles per hour through urban areas from 50 miles per hour and install sensors to detect faulty track. In May it agreed to give local officials more information on crude shipments through their communities. Discussions are underway to lower speed limits further, to 30 miles per hour.
Tank car owners, which are typically leasing companies and refineries, have balked at the cost estimated at as much as $60,000 each to modify tank cars to the new specifications and are lobbying to get a decade to take older cars off the tracks.
“GATX fully supports efforts to improve the safety of crude-by-rail transportation and we are committed to working with our industry partners to improve the design of the North American tank car fleet,” the Chicago-based lessor of tank cars said in an e-mailed statement today.
While it’s important to improve tank car standards, “even under the most aggressive schedule” to replace and modify existing fleets, it will take a number of years to complete the effort, the company said.
“The quickest and most meaningful way to improve crude-by- rail safety is to approve new regulations regarding railroad operating procedures and classification and testing of flammable liquids,” GATX said.
“There’s just a lot of questions that need to be determined and answered before anyone could ever tell you here’s how it would impact our business,” said Dean Acosta, a spokesman for Phillips 66, which owns 3,200 tank cars that are all newer CPC-1232 cars, which include head shields and valve protection.
Railroads, which don’t own tank cars and support stricter standards, have opposed slowing speeds to 30 miles per hour and eliminating the practice of parking unattended oil trains.
“We continue to work cooperatively with our customers, communities and the regulators to ensure we remain safe and efficient,” Michael Trevino, a spokesman for BNSF, a unit of Warren Buffett’s Berkshire Hathaway Inc., said in a telephone interview. Stephanie Serkhoshian, a spokeswoman for Union Pacific Corp., declined to comment.
“We have been active in taking steps to make our railway even safer through a top-to-bottom tightening of train operations; as well as implementing industry-wide voluntary initiatives and complying with directives announced by federal regulators in Canada and the United States,” Ed Greenberg, a spokesman for Canadian Pacific Railway Ltd. said in a telephone interview.
Canadian Pacific rose 1.3 percent to C$196 at the close in Toronto today. Union Pacific rose 0.9 percent to $100.98 in New York.
The greater Chicago area is the nexus of Bakken crude oil shipments that move east to refineries in New Brunswick, Canada, and either to the U.S. east coast or south to the Gulf of Mexico. About 100,000 tank cars carrying oil and ethanol will pass through Aurora by the end of this year, according to the town’s Fire Department. In 2007, there were about 25,000.
In nearby Plainfield, a Chicago suburb, a Canadian National Railway Co. line that carries crude oil runs through the town.
“I’m extremely fearful,” said James Racich, who has lived there for 43 years and is an elected village trustee. The trains roar by his home about 200 yards from the tracks and Plainfield Central High School, where two of his grandchildren attend, is about a mile from the rail line.
“We are getting these intrusions of oil trains continually in a very populated area and I don’t know what’s governing their safety. My concern is that they leave the trains parked for a while, right near the downtown area.”
That’s what happened in Lac-Megantic. The train, hauling more than 70 carloads of crude oil from North Dakota to the Irving Oil refinery in New Brunswick, was left parked on a hill unattended outside the town of 6,000.
Investigators with Canada’s Transportation Safety Board found there was insufficient braking to stop the cars from rolling. The train careened down the hill at about 70 miles per hour, derailed and exploded, obliterating dozens of buildings, including a bar full of patrons.
Piles of rubble and security fences still surrounded parts of the downtown in April though there’s a new pool hall, liquor store and a clothing shop and restored tracks carried trainloads of lumber from a local plant. Crude trains aren’t expected to return to Lac-Megantic before 2016, Louis Longchamps, a spokesman for the town, said in an interview.
Montreal, Maine & Atlantic Railway Ltd. which filed for bankruptcy last year as a result of the Lac-Megantic disaster, and three of its employees were charged in May with criminal negligence in the crash.
Oil was rarely moved by railroad before new drilling techniques opened up oil production in shale rock formations found in North Dakota, Texas, Pennsylvania, Colorado and other states. Carloads of oil jumped to 408,000 last year from 11,000 in 2009, according to the Association of American Railroads, a Washington-based lobbying group.
Canada exported 160,164 barrels per day of crude by rail in the first quarter of the year, compared with 15,980 barrels a day in the first quarter of 2012, according to Canada’s National Energy Board, a federal a federal agency.
The surge in output, especially from the Bakken, has raised the stakes for plans to build the $5.4 billion Keystone XL pipeline to bring heavy crude from Alberta to the U.S. Gulf Coast. The pipeline has galvanized environmental groups who argue it would worsen climate change.
In May, the State Department raised its estimate of deaths and injuries that could come from not building the pipeline and relying on rail to 434 deaths versus an earlier figure of 94, and 2,947 injuries compared to the 700 initially reported, over a 10-year period.
Shippers began using tank cars designed to haul ethanol to move the crude with the surge in production. Concerns over the safety of ethanol cars a decade ago led to a new tank car design for orders made after October 2011. The new models included head shields and valve protection, although the thickness of the steel shell remained the same. There was no agreement to phase out the older DOT-111 cars, often referred to as legacy cars.
The newer cars, the CPC-1232s, make up 33 percent of the tank cars hauling crude oil, according to the Association of American Railroads. The railroads are calling for another tank car design with thicker steel, extra safety valves and a thermal jacket to protect against oil from heating as easily to the point of exploding.
The trade group has called for aggressively phasing out the legacy tank cars and wants the new cars to be built with 9/16- inch thick steel that shippers say will boost the cost by 10 percent and add weight that would reduce capacity by the same amount.
With less capacity, shippers would need as many as 8,700 additional tank cars to haul the same amount as today, according to the American Petroleum Institute, a Washington-based lobbying group whose members include Exxon Mobil Corp.
“We haven’t seen the data to suggest” that the stronger tank car design is safer, said Brian Straessle, an API spokesman, said.
Railroads, in a June 10 meeting with White House and Transportation Department officials argued against slowing crude trains to 30 miles per hour, installing electronically controlled pneumatic brakes and manning parked trains. The railroads cited increased costs.
A BNSF report submitted at the meeting said reducing crude oil train speeds to 30 miles per hour on its line from Aurora to Spokane, Washington, would cause a 9 percent decline in all train speeds that would require $800 million of investment to recover. Shippers would have to add 11,280 tank cars to make up for the capacity decrease, the report said.
Thomas Simpson, president of the Rail Supply Institute, a Washington-based group that represents tank car makers and owners like GATX, said the Transportation Department should take a “holistic approach” to rail safety, including steps to prevent derailments and to ensure the oil being transported isn’t especially volatile. The group supports upgrades to the DOT-111 car, though not the thicker shelled car advocated by the Association of American Railroads.
Some safety advocates say mile-long trains filled with oil are inherently unsafe. No tank car design would hold-up in a derailment when the train is traveling 40 miles per hour or faster, said Fred Millar, a safety consultant in Virginia.
Derailments for the seven largest railroads operating in the U.S. declined to 1,020 last year from 2,042 in 2004. In Canada, derailments have fallen to 603 from 873 over the same period.
Weisner, the mayor of Aurora, is pushing for quicker action. as the frequency of crude-by-rail accidents has risen along with the production from shale fields.
“There’s no way anyone can argue that they’re moving along at the rate that they should,” he said. “It’s been a bit of a slow process.”
--With assistance from Greg Quinn in Ottawa and Frederic Tomesco in Montreal.