UPDATE 1-Refiner PBF says will soon only use safer railcars for crude

Thu Feb 13, 2014 12:08pm EST

HOUSTON Feb 13 (Reuters) - Refiner PBF Energy Inc will rely entirely on newer railcars to move Bakken crude oil starting on April 1, Chairman Tom O'Malley said on Thursday, as the industry faces pressure to use safer cars that can better withstand crashes.

The newer cars will also be deployed around June to carry Canadian crude, said the company, which runs refineries in Ohio, New Jersey and Delaware.

"While we are expanding our rail operations, we are doing so with a keen focus on safety," he told investors on a quarterly results call.

A spate of fiery crashes involving trains carrying crude oil has put pressure on producers, railroads and refiners to redouble safety procedures. A Norfolk Southern Corp train carrying crude derailed in Pennsylvania on Thursday.

PBF said it expects crude trains generally to move more slowly across the country as the overall supply chain comes under scrutiny. Refiner Tesoro Corp said last week it was replacing older railcars as well.

The Railway Supply Institute, which represents tank car owners, has urged federal regulators to adopt safety standards already embraced in October 2011 by the Association of American Railroads, the rail industry's trade group.

Under those standards tank railcars known as DOT-111s built after October 2011 should have thicker hulls and reinforced valves to better protect against punctures or leaks in derailments.

TURNAROUNDS, EXPORTS

PBF executives said that by July they expect to have two offloading projects completed with capacity to unload about 80,000 barrels per day (bpd) of heavy crude, up from 40,000 bpd, and 120,000-130,000 bpd of light crude, up from about 105,000 bpd.

They said at the end of the first quarter they plan a three-week turnaround at their Paulsboro, New Jersey, refinery. In the fourth quarter, they will do a turnaround at the Toledo, Ohio plant lasting about 40 days.

O'Malley said it was too expensive for the company to rely on U.S.-flagged ships to move crude from the U.S. Gulf Coast to the East Coast because doing so would add $5 a barrel to freight costs. Companies must use domestic shippers under the Jones Act.

He said that as part of the broader debate about lifting the U.S. crude export ban as domestic output surges, policymakers should consider scrapping the ethanol mandate for gasoline and the Jones Act - both of which can drive up costs for refiners.

"If you're going to export crude, please remove that mandate and remove the American flag law and then we can move forward," he said. "We, like most people in business are for the free market, but I'm not quite sure how there is a free market when the consumer on the East Coast will have to absorb an extra $5 dollars a barrel in freight costs."

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