* Entire fleet to have newest safety designs by mid-2014
* Railport project on target for late 2014, early 2015
By Kristen Hays
HOUSTON, Feb 6 Independent refiner Tesoro Corp
is replacing older railcars in its crude-by-rail fleet
with ones that have the latest safety designs, Chief Executive
Officer Greg Goff told analysts on Thursday.
He said 90 percent of Tesoro's fleet consists of railcars
that meet the latest design standards embraced by the rail
industry for all tank cars manufactured after October 2011. U.S.
regulators have yet to impose such standards.
By mid-2014, Tesoro will have replaced the remaining 10
percent of its fleet, currently comprising older cars, with ones
that meet the industry's newer design standards, Goff said
during the company's quarterly earnings call.
Keith Casey, senior vice president of strategy and business
development, told Reuters that as regulators consider imposing
more stringent railcar standards, Tesoro decided to replace its
remaining older cars "proactively, in advance of the
Refiners, railcar makers and railroads are in talks with
regulators on stronger standards in the aftermath of several
fiery crashes as oil-by-train transport has surged in tandem
with the U.S. crude production boom.
It was the latest effort by a refiner to reassure the public
about tank car safety following the crashes that sharply hiked
scrutiny of moving oil by train.
Last week Joe Gorder, chief operating officer for Valero
Energy Corp, the largest U.S. refiner, told analysts
that all 5,320 railcars the company has on order meet the newer
He said Valero could use the incoming newer cars to move
crude and use the 6,000 cars it currently leases to move other
materials, such as asphalt and ethanol, he said.
PBF Energy Chairman Tom O'Malley said last year that
the refiner expects to use all newer company-owned crude
railcars by the end of 2014 as its rail capacity expands, and
all of Phillips 66's crude cars meet the latest
Casey said Tesoro's replacement cars will be "jacketed," or
have a more puncture-resistant shell, as well as heating coils
capable of moving undiluted heavy Canadian crude.
While the change gives Tesoro the flexibility to start
moving Canadian crude to its refineries, Casey said the company
will initially stick to lighter inland U.S. crudes in cars with
the additional protection against punctures or leaks.
New regulations under consideration by the U.S. Department
of Transportation's Pipeline and Hazardous Materials Safety
Administration could make all refiners, logistics companies and
shippers that move oil by train replace or retrofit crude
railcars made before October 2011.
The railcar industry estimates that some 80,000 tank cars
that haul flammable liquids, including crude, don't meet the
post-October 2011 standards.
Railcars involved in a runaway crude train that exploded and
killed 47 people in Quebec last July were of the older design,
as were cars that crashed into a derailed grain car in North
Dakota in December, according to investigators.
Crude movements rose 71 percent in 2013 compared with 2012,
more than 10 percent of average U.S. output of 7.5 million
barrels per day last year, according to the Association of
American Railroads, the rail industry's trade group.
Tesoro began shipping Bakken crude via rail to its 120,000
bpd refinery in Anacortes, Washington, in September 2012, and
has since begun shipping up to 12,000 bpd to its 166,000 bpd
Golden Eagle refinery in Martinez, California.
In addition, Casey said other potential sources for rail
shipments include the Niobrara shale play in Wyoming and
Colorado and the Permian Basin in Texas and New Mexico.
The company also is seeking permits to build a $100 million
joint-venture railport with Savage Services at the Port of
Vancouver in Washington.
The project, which remains on target to start up in late
2014 or early next year, would receive railed crude and then
load it on barges or tankers to go to West Coast refineries run
by Tesoro and other companies.
Other refiners also receive crude via rail - particularly on
the West and East coasts - to tap crudes that are cheaper than
imports despite lacking pipeline infrastructure.
Goff told analysts that the recent crude train crashes have
prompted more "public interaction" with proposed rail project
"We feel good about working through that," he said.
He also said Tesoro implemented emergency procedures more
than a year ago to respond to a crude train incident within two
hours anywhere on the route from North Dakota to Washington