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Older rail tank cars in crosshairs, but questions over cost to upgrade

CALGARY - The model of railcar involved in last summer's disaster in Lac Megantic, Que., that claimed 47 lives was in the crosshairs of some big Canadian industry players this week.

Among them, a prominent railway CEO urged their immediate removal from North American tracks in an impassioned speech to a Calgary business audience while a New Brunswick oil refiner vowed to stop using the railcars.

But questions remain over how far improvements on the ubiquitous DOT-111 tank cars ought to go and how much it will cost to make those changes.

There have long been concerns over DOT-111 cars — used to carry crude oil, ethanol an other flammable products — centred on their tendency to rupture in the event of a crash.

In 2011, the industry adopted voluntary specifications for new cars that are more stringent, but rail industry groups and regulators have suggested that any new government-imposed rules go further.

In year-end documents filed with regulators on Wednesday, Calgary-based oil producer Cenovus Energy Inc. (TSX:CVE) flagged potential new rail regulations as a risk factor.

"If new regulation is introduced, including but not limited to the potential amendment of the safety standards for tank cars used to transport crude oil, it could adversely affect our ability to ship crude oil by rail or the economics associated with rail transportation," it said.

In the fourth-quarter of last year, the company moved about 10,000 barrels per day by train and expects to have the capacity to move three times that amount by the end of this year.

In a speech to the Calgary Chamber of Commerce on Tuesday, Canadian Pacific Railway Ltd. (TSX:CP) CEO Hunter Harrison made an impassioned plea for older-model DOT-111s to be taken out of service immediately. Railways don't own the cars that move along their networks and are not free to turn down any shipments their customers want hauled, he said.

In order to dissuade customers from using the pre-2011 DOT-111s to move hazardous materials, CP has said it will slap a $325 surcharge on each car.

But Harrison said DOT-111s built after 2011 are "much safer" than their predecessors and he has no qualms about their use.

"You can always second guess and add another layer and another layer, but I would be comfortable hauling in those retrofitted cars," he said.

A government-commissioned report released Friday said there are about 228,000 DOT-111 cars in service throughout North America, with about 92,000 of them carrying flammable liquids. Since 2011, about 26,000 of the reinforced models have been put into service and that's expected to rise to 52,500 next year.

On Monday, New Brunswick-based Irving Oil said it would convert its own railcar fleet to the post-2011 models by April 30, and ask that its suppliers do the same by year-end.

But Greenpeace campaign co-ordinator Keith Stewart said the move amounts to "shuffling the cars around."

If those cars aren't pulling up at the Irving refinery in Saint John, N.B., then they'll be going somewhere else, he said. "That might change the calculus for New Brunswick, but it doesn't change it overall."

At least one U.S. railcar manufacturer isn't waiting for new government regulations. Oregon-based Greenbrier Companies is in the early stages of developing what it calls the "Tank Car of the Future," which it says will address many of the safety concerns with the DOT-111 fleet. In addition, Greenbrier is offering retrofits on existing railcars built both before and after 2011.

The Railway Supply Institute, a Washington-based lobby group that represents providers of equipment and services to the rail industry, recently proposed railcar upgrades to the U.S. Transportation Secretary — including measures above and beyond the 2011 standards.

"We also expressed a little frustration at the regulatory uncertainty that is out there. The uncertainty over what a new car is going to look like and the uncertainty over what happens to the current 111 fleet is starting to impact our business," said institute president Thomas Simpson.

"I hear anecdotal evidence that companies aren't buying new tank cars because of regulatory uncertainty."

The institute wants to see changes to existing cars, including added thermal protection, a steel jacket, a full-height head shield and improved fittings protection both at the top and bottom of the car. It's also pitching modifications to newer cars, such as new high-flow pressure relief valves.

"The decision on whether to modify those cars or not with that type of a package would be up to the car owner and, if the car owner chose not to modify the car, then that car would either be repurposed or retired," he said.

The most expensive aspect of upgrading older railcars is adding insulation — $25,000 to $30,000 for a car that would have cost $80,000 to purchase, said Toby Kolstad, with consulting firm Rail Theory Forecasts. Many crude railcars already have insulation — which is necessary to move undiluted bitumen for the oilsands, for instance — but those types of upgrades for ethanol cars could be too costly to justify.

How long it takes to reconfigure the current fleet of cars depends on the extent of the changes required, Kolstad.

"If you just do the head shields and the pressure relief valves, you're probably talking a few years," he said.

"If you're talking insulating the cars, I don't know if it's feasible, I don't know if it's economical. But if it was feasible, it was economical, that is a major job and you would be talking an extended time period, just from keeping the shops from getting overwhelmed."

Greenpeace's Stewart said the increased scrutiny could force crude producers to "press the pause button" on oil-by-rail growth.

"There's been this assumption coming out of the oil industry that they have to be allowed to move oil to market by any means necessary and the truth is, that's for Canadians to decide, not the oil industry," he said.

"If they can't move their product safely, then they shouldn't be able to move it."

Follow @LaurenKrugel on Twitter

The Canadian Press


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