Energy transport industry braces for new regs

OREANDA-NEWS. June 08, 2015. The petroleum transportation industry is getting ready for the coming wave of new regulations, with players taking a close look at new tank car rules and hopefully eyeing a potential repeal of the Jones Act.

From filing formal opposition to the new regulations to ramping up production facilities to meet new standards, companies that spoke at the Argus North American Petroleum Transportation Summit this week are hoping for the best but preparing for the worst.

Demand will spike for new tank cars when new rules calling for a phase-out of older, less-safe models go into effect because so many cars are in crude oil service, said Michael Obertop, senior vice president of sales and marketing at GBW Railcar Services.

About 36,000-38,000 tank cars will be built this year, said Bob Pickel, senior vice president of marketing and sales at National Steelcar, also at the conference.

"I don't know if you can retrofit 150,000 cars over 10 years with the shop capacity that we have today and … a lot will depend on what they want to do with the older cars," Pickel said. Still, he does not anticipate a real backlog on new car orders. "The oversupply of tank cars is very unlikely."

There's been strong industry opposition to the new crude-by-rail rules, which require sturdier tank cars and all high-hazard flammable trains to have new braking technology after 2023. It also requires the oldest, non-jacketed DOT-111 cars to be removed from crude and other packing group I materials service or be retrofitted by 1 January 2018.

Members of Congress have proposed various bills that would shorten the timeline for the phase-out of older tank cars, regulate vapor pressure of crude being transported by rail and expand speed limit restrictions on crude trains. The American Petroleum Institute has sued over the new rules, saying the timeline is too short, while environmental groups have sued to say the timeline is too long.

But former Pipeline and Hazardous Materials Administration (PHMSA) administrator Cynthia Quarterman said she thought the new rules would withstand the backlash because they were developed under a very thorough process.

"In regulator speak we say, ‘Okay, I think we must have gotten it just about right if everybody hates it,' but we will see what will happen in the lawsuits going on," she said.

Some operators are turning also to the sand business to supplement their crude-by-rail operations. Arb Midstream is one such company, opening sites in the Niobrara and Permian basins that will bring in unit trains of sand and send out unit trains of crude.

"Rail can compete with pipeline economics," said Arb chief executive Adam Bedard.

The new regulations can have an impact on whether and how pipe is competitive with rail versus marine. Barge is much cheaper than rail or pipeline, said Kevin Sterling, a managing director at BB&T Capital Markets.

However, marine movements are constrained by the Jones Act, which require US-flagged ships for movements between US ports.

Despite chatter from politicians of repealing the Jones Act, it's not considered to be very likely, said Darrell Conner, government affairs counselor for K&L Gates.