Blame Game Starts Over Recent Oil Train Spills

The string of oil train derailments is sparking infighting between the various industry players moving oil around the country. An oil refining trade group is suing BNSF Railway Company for unfairly charging them a premium to use older railcars.

At issue are the DOT-111 railcars that have been implicated in so many explosive train derailments. Due to their thin walls and flimsy exterior, the railcars have been deemed unfit to safely move crude oil across North America. Both the U.S. and Canadian governments have plans to force their phase out from the rail fleet, but have been slow to issue new regulations. Related: Barrage Of Lobbying On New Oil Train Rules

The DOT-111s were originally intended to haul non-explosive commodities, such as agricultural goods. But, the surge in drilling in places like the Bakken has contributed to a meteoric rise in the shipment of crude by rail. An estimated 10,000 carloads of oil were shipped in 2008; that number skyrocketed to 400,000 in 2013. Such a rapid increase in oil shipments meant that the DOT-111 railcars were called upon for duty.

However, while regulators are sorting out the specifics, in the meantime tens of thousands of DOT-111 cars are still moving crude on the railways, and the derailments have not stopped. Complicating matters further are the diffuse and confusing layers of liability that have stalled meaningful reform. Railroad companies do not own the railcars, shippers do. The shippers are usually the refiners themselves, or upstream producers. But railroads are required by law to accept oil shipment on their rails, and in turn, are liable for accidents. Related: Two Trains Carrying Crude Derailed, Exploded, In The Past Week

BNSF slapped a $1,000 fee on each older railcar to cover the extra risk. BNSF carries a lot of sway given the fact that it moves about one-half of all the oil being pumped from North Dakota and Montana, or around 600,000 barrels per day. BNSF is trying to incentivize shippers to switch to newly manufactured railcar designs, which are supposed to be safer. Shippers, for their part, argue that manufacturers can't build sufficient quantity fast enough, and thus, are forced to use the DOT-111s for the time being.

The surcharge works out to an additional $1.50 per barrel of oil at the beginning of the year. The American Fuel & Petrochemical Manufacturers dispute the legality of the fee, arguing that they are not yet required by law to switch to newer models as government regulations are still being written. Related: Recent "Bomb Trains" Expose Regulatory Failures

"BNSF's assertion of unilateral regulatory authority over crude oil tank car standards conflicts with the pending PHMSA rulemaking on such standards," the trade group said in a complaint, according to Bloomberg. The group sued BNSF in a U.S. District Court in Houston.

The fate of the lawsuit is ultimately uncertain, but could be overtaken by events. The federal government is planning on unveiling new rail safety rules in May.

By Charles Kennedy of Oilprice.com

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