Exec Skeptical About Effectiveness of DOT Tank Car Order

Responding to a string of recent derailments of trains carrying crude oil from the Bakken Shale play, the U.S. Department of Transportation (DOT) late last month issued an emergency order requiring all crude-by-rail shippers to ensure that the product is tested and classified according to federal safety regulations.

The emergency order immediately requires that all lower-risk, "Packing Group III" (PG III) crude shipments – treated as flammable liquids – be transported in more robust tank cars used to carry "Packing Group I" (PG I) and "Packing Group II" (PG II) hazardous materials. The derailments, which occurred in the states of Alabama and North Dakota and the Canadian province of Quebec, all carried Bakken crude in "DOT-111" tank cars used to carry PG III shipments.

"Today we are raising the bar for shipping crude oil on behalf of the families and communities along rail lines nationwide – if you intend to move crude oil by rail, then you must test and classify the material appropriately," commented DOT Secretary Anthony Foxx in a Feb. 25 press release. "And when you do ship it, you must follow the requirements for the two strongest safety packing groups."

The outspoken head of an exploration and production (E&P) company with operations in the Bakken and other shale plays recently told Rigzone that the order is not well-thought-out, and he questions how high DOT's emergency order will actually raise the proverbial bar. Moreover, he contends that better enforcement of existing rules and the approval of TransCanada's Keystone XL oil pipeline project would improve the safety of shipping crude oil. Read on for more insights from Chris Faulkner, CEO of Dallas-based Breitling Energy.

Rigzone: As the head of an E&P company, what does the U.S. Department of Transportation's emergency order mean for you in the near term? Longer term?

Faulkner: There are already reports of rail shipments slowing down, possibly as a result of the DOT's emergency order. If the order is enforced, it could continue slowing things down for a while because it requires more testing. But I would expect that to be short-lived, either because companies will simply fall into a new routine or they'll simply ignore the emergency order.

Rigzone: You've indicated that the order itself may not be well thought out. Why is that?

Faulkner: It's just common sense: if you want to prevent spills and explosions, you eliminate the tank cars that you already know are the most prone to puncture. It's ludicrous that the DOT comes out now with these "emergency orders" when it's known for 20 years that these rail cars are a problem. Look at the accidents in the last decade and what you'll see is that they involved DOT-111 tank cars. That's why there are proposals for eliminating cars built before 2011, but nothing has yet been done about it.

Rigzone: What common threads do you see in the accidents – some deadly – that have occurred to date? Do you think that, in the end, they stem from a "rail industry" or "oil industry" problem?

Faulkner: The common thread between these rail accidents is that they stem more from a lack of enforcement than anything else. This emergency order is simply applying a high level of urgency to regulations that have been in effect for 20 years, but haven't been enforced. We've known for two decades that the DOT-111 tank cars are more prone to rupture in derailments, and yet they are still on the rails, still carrying the bulk of the crude oil moving by train through this country. (EDITOR'S NOTE: This presentation from the National Transportation Safety Board outlines DOT-111 design problems.)

Rigzone: How do you think the Keystone XL pipeline could make this a non-issue?

Faulkner: The U.S. State Department itself has said that there will be approximately 49 injuries and six fatalities per year as a result of increased train traffic if Keystone XL is not approved, versus one injury and no fatalities if Keystone XL is approved. That says it all. We can keep shipping crude by rail and just wait for the spills, explosions, injuries and death; or we can finally get Keystone XL built and save a lot of people and a lot of property.

Rigzone: What could the DOT's emergency order mean for refiners and, ultimately, the individual consumer filling up his or her fuel tank?

Faulkner: It's easy to get into scare-mongering over this, especially since we've seen some slow-downs already, but it's not easy to predict exactly how this will pan out. It's very likely that this will turn into another case of much ado about nothing. The DOT hasn't been enforcing its own rules for the past 20 years, so why should we believe that it will start in earnest now?

Matthew V. Veazey has written about the upstream and downstream O&G sectors for more than a decade. Email Matthew at mveazey@downstreamtoday.com. Twitter: @Matthew_Veazey