HOUSTON (Reuters) - Shippers who move crude oil via rail on some of the oldest railcars on the tracks take a chance every day that their shipment might crash and burn, the chief executive of U.S. railcar maker Greenbrier Cos said.
Greenbrier, the only U.S. railcar manufacturer to market a new tank car design that exceeds the latest safety standards, sees its efforts as getting ahead of the inevitable - that new U.S. Department of Transportation standards will outlaw those cars, CEO William Furman said.
A recent move by BNSF Railway Co, the biggest mover of North Dakota Bakken crude by rail, to charge shippers an extra $1,000 per older car by Jan. 1 also shows railroads can force the issue no matter what regulators do.
“Those cars clearly are in the gunsights - either DOT will outlaw them or railroads will quietly price them out of existence,” Furman told the Reuters Global Commodities Summit.
“I’m sympathetic to people who have billions of dollars invested in older-design cars, but facts are facts. You’re one huge disaster away from a real backlash from the public,” he said.
Some backlash is already there after several fiery crude train crashes, the worst by far in July last year when a runaway train in Quebec careened into a town and exploded, killing 47 people. Subsequent crashes or derailments in the U.S. didn’t cause any deaths, but generated fear that the next one might.
In October 2011 the rail industry adopted a new safety standard for tank cars that carry crude with thicker hulls, reinforced valves and less likely to leak in a derailment.
Regulators still allow the pre-October 2011 version, known as a DOT-111, that the National Transportation Safety Board said in 2009 was inadequate.
And more oil is moving via rail than ever. The second quarter this year, nearly 950,000 barrels per day moved via rail - a jump of more than 100 percent compared to 2012.
DOT is seeking comment on proposed new safety rules likely to be imposed early next year that include three options for a safer tank car. One of those options is the post-October 2011, 7/16-inch-thick-steel standard adopted by the industry.
The other two involve thicker 9/16-inch steel and more reinforcements - potentially requiring tens of thousands of newbuilds or retrofits that some say would overwhelm manufacturing capacity and stifle transit.
Greenbrier’s so-called “Tank Car of the Future” design matches one of the 9/16-inch options. The company has received nearly 4,000 orders so far from two customers - a railcar leasing company and an energy company.
BNSF, which in February this year solicited proposals for a stronger railcar, hasn’t ordered Greenbrier’s design because the company is waiting to see what standard DOT sets, a BNSF spokeswoman said. Furman said BNSF’s move inspired Greenbrier to step up with its design.
Others also are waiting to see if DOT requires a design other than the post-October 2011 standard, which many shippers, including refiners that receive oil by rail, have already adopted.
Whether Furman’s industry has the capacity to meet huge demand for newbuilds and retrofits in a three-year timeline, as DOT is considering, is a matter of hot debate.
The Railway Supply Institute says 57,000 existing legacy DOT-111 railcars are in the crude and ethanol fleet. As the current railcar backlog for new crude and ethanol cars consumes all manufacturing capacity through the end of 2015, RSI says it will take more than three years to replace those existing DOT-111s.
Also, RSI says that in 2016 railcar makers can build about 20,000 new tank cars per year and still meet growing demand for other types of railcars.
While Furman concedes that meeting sharply increased demand if DOT imposes a stronger railcar standard will be a challenge, he’s convinced the industry can do it. Greenbrier is doubling its tank car manufacturing capacity to 7,500 cars a year, and other railcar makers are beefing up their capabilities as well.
“There’s plenty of capacity there if the government sets a standard for three years. I’m sure somehow we’ll fill the demand,” he said.
He also shot down arguments that thicker steel and reinforced top and bottom fittings won’t matter in a situation like that in Quebec or when a BNSF crude train crashed into a derailed grain train in North Dakota in late 2013.
When a multi-ton train faces millions of tons of pressure at a collision point, “it can ignite a peanut butter sandwich with those kinds of forces,” Furman said.
But if the steel is thicker, and top and bottom valves are covered, punctures could be prevented and those fittings may not pop off when a car derails, rolls and drags along the track.
And even if DOT doesn’t order the 9/16-inch design, its availability could be problematic for shippers with less fortified cars if they have a catastrophic crash and face myriad lawusits, he said.
“The government’s got to act to make this better, and in our own self interest, we should act to do the morally correct thing,” Furman said.
Reporting By Kristen Hays