WASHINGTON/CALGARY Aug 14 Thousands of oil
train tankers soon to be deemed obsolete in the United States
are unlikely get a second life in Canada's oil sands industry,
undercutting a U.S. government forecast that the costly cars
will continue in use in the energy sector.
If thousands of obsolete tank cars are scrapped, it could
add hundreds of millions of dollars to the cost of the proposal,
industry officials said - unwelcome news for regulators trying
to craft a safety plan that does not add crippling costs to
Regulators on both sides of the border are contemplating
rules to prevent oil train accidents like the July 2013 Lac
Megantic disaster in Quebec, in which a runaway train loaded
with fuel from North Dakota's Bakken oil patch derailed, killing
Those plans would modernize the current U.S. fleet of
roughly 90,000 tank cars with puncture-resistant shells and
other costly upgrades that government and industry sources
expect to cost more than $3 billion.
The U.S. Department of Transportation has said the
transition will be eased with about 23,000 existing cars going
into service to cart Canadian oil sands crude - a molasses-like
fuel, bitumen, that is less flammable than ordinary crude oil.
"No cars will retire as a result of this rule," the DOT's
Pipeline and Hazardous Materials Safety Administration (PHMSA)
said in its oil train proposal released in July.
But industry experts said it is not feasible to simply
retrofit the older cars to the specifications needed to carry
oil sands, making it likely thousands of cars will be scrapped.
"We don't anticipate we will see the cars here," said Julie
Puddell, investor relations manager of Keyera Corp,
which operates a loading terminal in Edmonton, Alberta, with
Kinder Morgan Energy Partners LP.
While the general purpose cars can be used to transport
bitumen diluted with a light fuel called condensate, many oil
sands shippers prefer speciality-built tank cars with internal
heating coils, because heat stops the bitumen from solidifying
while in transit and makes it easier to unload at refineries.
Industry sources say adding heated coils to a standard tank
car - which can have a useful life of forty years or more -
would have prohibitive costs.
"There are ways to retrofit, but it could make them even
more expensive than a new-build," Puddell said.
A spokeswoman for Cenovus Energy Inc, Canada's No.
2 oil producer which aims to ship 30,000 barrels per day of oil
by rail by year-end, said the company was focused on leasing new
heated and coiled cars.
And Valero Energy Corp has ordered more than 2,900
heated tank cars for delivery in the next twelve months to take
bitumen to its St. Charles, Louisiana refinery and elsewhere.
Between rail and barge deliveries, the largest U.S.
independent oil refiner expects to be receiving more than 55,000
bpd of bitumen from Canada by mid-2015. A Valero spokesman said
the company principally relies on heated cars to move the fuel.
A U.S. Transportation Department official said the agency's
proposal was open to amendment following a public comment period
that ends on Sept. 30.
"Regulators are academic when they write these rules. They
always underestimate costs," said Larry Bierlein, a veteran
hazardous materials lawyer and former hazmat counsel to the
Department of Transportation.
"That will become clear as the industry digests this
proposal and prepares for the political push-back," Bierlein
(Reporting by Patrick Rucker and Nia Williams; Editing by Ros
Krasny and Marguerita Choy)