Crude Oil Transportation and Federal Regulation

By: Cathryn Courtin, The Horinko Group

June 2014

Recent months have seen a number of accidents resulting from crude oil shipment by rail.  On April 30, a train loaded with crude derailed in Lynchburg, VA, causing three tankers to burst into flames.  Nearby residences and businesses had to be evacuated, and 30,000 gallons of oil were spilled into the James River.  On December 30, a train derailed and exploded near Casselton, ND, spilling 400,000 gallons of crude.  Last year, a series of rail accidents in the U.S. and Canada culminated with a major derailment in Lac Mégantic, Quebec, which resulted in an explosion killing 47 people and wiping out a large part of the town’s business district.

Shipments of crude oil by rail have dramatically increased in recent years.  This influx has in part been caused by the rapidly increasing oil and gas development in the Bakken formation in North Dakota and Montana, the Eagle Ford and Permian Basins in Texas, and in the Canadian oil sands.  Routes from new production fields to refineries often do not have pipelines or where pipelines exist, they are operating at maximum capacity.  Given the standstill on new pipeline project approvals, companies have moved to rail and trucks to transport crude oil and other fluids associated with oil and gas development.  This has resulted in a staggering increase in the amount of crude shipped by rail, up from 9,500 carloads of crude oil in 2008 to 400,000 in 2013.

Many of the most serious rail accidents have been intensified by the flammable nature of the light crude that is being transported, in most cases from the Bakken region.  This type of crude contains more natural gas liquids than traditional heavy crude, the variety produced from the Canadian oil sands.  The Department of Transportation’s (DOT) Pipeline Hazardous Materials Safety Administration (PHMSA) released a safety alert in January 2014 to notify stakeholders of this issue and reinforce the requirement to properly test and classify hazardous materials prior to transportation.

In an effort to further prevent accidents, DOT’s Federal Railroad Administration (FRA) and PHMSA have launched “Operation Classification” in the Bakken region, a compliance initiative aiming to verify that shippers are accurately classifying the oil being shipped so that federal, state, and local safety practitioners know what to expect in case of an accident.

Regulatory efforts to bolster safety have continued with more urgency following each incident.  On May 8, DOT issued an emergency order requiring railroads to notify State Emergency Response Commissions (SERCs) when making large shipments (1 million gallons, or about 35 tank cars, or more) of Bakken crude oil (under current practices, railroads are not required to notify states of movements of hazardous cargo).

In announcing this new rule, a DOT official stated, “the number and type of petroleum crude oil railroad accidents…that have occurred during the last year is startling, and the quantity of petroleum crude oil spilled as a result of these accidents is voluminous in comparison to past precedents.”

Simultaneous to the release of the emergency order, FRA and PHMSA issued a safety advisory urging shippers of Bakken crude oil to choose the tank cars of the highest level of integrity and safety from their fleets for these shipments.

Parallel efforts to increase safety include conducting special inspections, moving forward with a rulemaking to enhance tank car standards, and discussing with railroads immediate voluntary actions they can take such as reducing speeds, increasing inspections, choosing the safest routes, using new brake technology, and investing in first responder training.

The rulemaking on tank car standards aims to update standards for the DOT-111 type of railroad car, which are used to transport crude oil and other hazardous and nonhazardous liquids.  Many groups and politicians have encouraged PHMSA to release the proposed standards quickly.  The National Transportation Safety Board (NTSB) has warned that these tank cars are prone to spills, tears, and fires in derailment for 20 years now.  Canada’s Minister of Transport announced proposed regulatory changes in January 2014 that would require additional safety measures for new tank cars.

New standards in the U.S. have been making slow progress since 2011, and the rulemaking process was officially initiated by PHMSA in September 2013.  The rules are expected to ensure the safety of DOT 111 tank cars transporting Class 3 (flammable and combustible) Packing Group I (great danger) and II (medium danger) materials.  There is an ongoing debate between stakeholder groups, however, on the best method and best timeframe for this—by retrofitting old cars, phasing out old cars, setting standards for new cars, or some combination of those approaches.

OMB announced on May 1, 2014 that PHMSA had submitted a notice of proposed rulemaking (NPRM) for “Enhanced Tank Car Standards and Operational Controls for High-Hazard Flammable Trains.”  This follows the advanced notice of proposed rulemaking (ANPRM) published last September.  This timeline of activity suggests that the rulemaking process is proceeding faster than average for PHMSA.  A final rule, however, is not expected before 2015.

Following the recent accidents in Canada, the Canadian government has taken a number of additional actions to improve the safety of rail shipments.  In October 2013, they passed laws requiring classification tests on crude oil before transporting or importing it through Canada.  More recently, in April 2014, Canadian regulators announced that they would require emergency plans from railroads for responding to explosions and would require shippers to upgrade to the safest, newest models of tank cars within three years.  Since cross border rail shipments must meet the safety requirements of both countries, this requirement will spur upgrades in the U.S. and likely encourage similarly protective U.S. regulations.

Origin of Regulatory Regime

The oil and gas exemption from the federal Resource Conservation and Recovery Act (RCRA) precludes EPA from regulating the transportation of oil and gas development related fluids including hydraulic fracturing fluid, wastewater, and crude oil.  The federal bodies responsible for non-pipeline transportation regulation include the Federal Highway Administration (FHA) and the Federal Railroad Administration (FRA), for transportation by truck and rail, respectively.

DOT’s PHSMA is responsible for the safe transport of hazardous materials in all modes of transportation.  The requirements issued by PHSMA are enforced by FRA with respect to railroads.  NTSB investigates accidents and makes recommendations for preventing them in the future but has no regulatory authority.

When an incident occurs involving the release of oil, the National Oil and Hazardous Substances Pollution Contingency Plan, or the National Contingency Plan (NCP) regulates the response to the spill.

If oil is spilled into navigable waterways, shorelines, or other resources of the United States, the Clean Water Act, as amended by the Oil Pollution Act of 1990, Section 311(c), provides explicit federal authority to respond.

Related Efforts Under EO 13650

While DOT works to improve crude oil transportation safety through FRA and PHMSA’s authorities, the Department has simultaneously been working with EPA, Department of Labor, Department of Homeland Security, and a number of other federal agencies to respond to Executive Order (EO) 13650, Improving Chemical Facility Safety and Security, issued in August 2013.  The EO was administered in response to the West, Texas chemical explosion and aims to improve the safety of chemical facilities.  Among other things, it requires agencies to enhance their coordination, information collection and sharing, and collaborate to modernize key policies, regulations, and standards.

While not directed at the transportation of crude oil, the requirements of this EO that relate to crude oil are those that encourage agencies to ensure that state, tribal, and local emergency response commissions have ready access to key information and work with chemical facility owners and operators to improve response procedures, information sharing, and collaborative planning.

With respect to the “modernizing policies, programs, and requirements” clause of the EO, options for improvement were released by OSHA for public comment on January 3, 2014.  The public comment period closed on March 31, 2014.  One of the considerations listed was broadening OSHA’s Process Safety Management (PSM) standard and EPA’s Risk Management Program (RMP) rule to address additional substances and types of hazards such as those derived from upstream oil and gas facilities.  This round of public feedback will inform the agencies’ plans going forward but does not supersede the standard notice and comment process should a rulemaking be pursued.

EPA’s RMP requires operators of facilities that manufacture, use, store, or otherwise handle certain listed flammable and toxic substances to develop risk management programs that include a hazard assessment, prevention mechanisms, and emergency response measures.  OSHA’s PSM standard sets requirements for the management of highly hazardous substances to mitigate accidents that might endanger workers.

OSHA published a Request for Information (RFI) in the Federal Register in early December 2013 and accepted comments on potential revisions to its PSM standard until March 31, 2014.  On May 22, 2014, EPA submitted a request to OMB for approval of an RFI related to the RMP rules.  Developments on these parallel regulatory efforts are expected in the coming months.

Neither the RMP nor the PSM rules currently apply to crude oil, but expanding the rules to cover oil and gas facilities has the potential to improve the safety of facility storage of substances like crude oil and community preparedness in surrounding areas.

A status report for the President covering all ongoing efforts under EO 13650 was released by the EO working group co-chairs in May 2014.  Actions taken to address the general requirements of the EO may work to improve the coordination of federal agencies, state and local planning commissions, and communities in training for, planning for, and responding to accidents, should they occur.

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