Potentially tougher safety regulations for tank railcars that haul crude could be costly but not dent growing volumes in transport giant CSX Corp’s oil hauling business, Chief Executive Michael Ward told analysts.
U.S. regulators are weighing new rules to better safeguard railcars from punctures or leaks in light of recent accidents involving trains carrying crude.
Ward and other CSX executives said on the company’s quarterly earnings call that they are working with railroad regulators and customers as the U.S. Pipeline and Hazardous Materials Safety Administration (PHMSA) considers tougher rules, which the agency said this week likely won’t be finished before January 2015.
The expense of retrofitting older railcars, “while large, won’t impact our ability to move this crude by rail,” Ward said.
He also said CSX expects to increase crude by rail shipments by 50 percent this year.
He said CSX moved about 46,000 loads of crude in 2013, mostly to U.S. East Coast refiners, running a single train per day throughout the year. That increased to two trains late in the year.
In 2014 the company expects to move two trains per day “and then we will start positioning ourselves as more and more of the unloading points along the East Coast are developed,” Ward said.
Heightened scrutiny of the growing crude-by-rail movement stems from recent crashes and derailments. The worst accident by far happened last July in a small Quebec town when a runaway train derailed and exploded, killing 47 people.
New regulations could include retrofitting older cars that don’t meet the latest industry standards of thicker hulls and reinforced valves.
While the industry adopted those tougher standards for tank railcars made after October 2011, some 80,000 older cars remain in use, hauling flammable liquids, including crude.
The oil-by-rail movement is growing alongside booming North American output, particularly to the East and West coasts where pipeline infrastructure is lacking. Crude shipments jumped 71 percent in 2013 to more than 780,000 barrels per day compared to the prior year, according to the Association of American Railroads.
Consultancy Turner, Mason & Company said this week that retrofitting is estimated to cost $30,000 to $60,000 per tank car. That’s $2.4 billion to $4.8 billion to retrofit 80,000 railcars, if all were upgraded.
The Railway Supply Institute, which represents tank car owners, says nearly a third of those 80,000 railcars transport crude oil, and the cost to upgrade all would reach $1 billion.
However, Turner Mason said that if regulations require a changeover to railcars with the stronger post-October 2011 design, the industry likely will see the older cars phased out via both replacement and retrofit.
Ward noted that railcars are largely owned by customers or leasing companies. Railroads own the locomotives. He and other executives said it was too early to speculate on new regulations and their costs.
“It will probably be a matter of months as that evolves,” Ward said.
On Thursday, U.S. Secretary of Transportation Anthony Foxx said operators were mulling measures including routing some fuel shipments around urban areas and slowing down trains carrying some dangerous deliveries in the wake of a recent spate of fiery derailments. (Reuters)