Crude Oil Freight by Rail in the Pacific Northwest

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1 Crude Oil Freight by Rail in the Pacific Northwest Background Information

2 Introduction: Oil Train Safety Symposium Transportation of oil by rail has greatly increased over the past several years with significant impacts for Washington State. To address emerging issues regarding safety procedures, incident response, and regulation development, the Transportation Working Group of the Pacific Northwest Economic Region (PNWER) is organizing an Oil Train Safety Symposium to be held in April 2016 in the Puget Sound region. The Symposium will provide a comprehensive overview of the current and future status of oil by rail transportation and emphasize partnerships to help ensure oil transport safety is being addressed across the region. PNWER is a statutory public-private partnership chartered by Washington, Oregon Idaho, Alaska, Montana, British Columbia, Alberta, Saskatchewan and the Yukon and Northwest Territories. PNWER promotes best practices and greater regional collaboration in order to enhance the economic competitiveness of the region while maintaining the natural resources of the Pacific Northwest. PNWER has addressed oil by rail concerns at recent meetings with regional stakeholders and has endorsed the development of an Oil Train Safety Symposium to provide current information to key parties and further response plans. In order to provide background information prior to the Symposium, PNWER has provided this informational white paper. Recent derailments of crude oil trains have led to new tank car construction standards and updated regulatory measures governing the movement of oil by rail which will impact operations along major rail corridors and at ports within the Pacific Northwest. Additionally, growing public concern about increased shipment of crude oil by freight rail has influenced lawmakers at the state and local levels to introduce new regulatory measures governing safety and oil spill response management. These developments will lead to changes in how private railway operators and public entities cooperate with one another, and will likely present new challenges and opportunities in the near future. 2

3 Economic Impact of Rail Shipments Freight rail contributes significantly to the economic activity of the Pacific Northwest region, in addition to the national economies of the United States and Canada. Philip J. Romero of the University of Oregon found that freight rail alone is responsible for $28.5 billion in economic activity in the state of Washington, and that rail freight supports more than 10% of the state workforce. Freight rail is also a major contributor to the Canadian national economy, with 70% of total surface freight moved by rail. Although trucks are widely used for the transportation of goods throughout North America, rail transports goods at an efficiency of one ton of freight for 500 miles on one gallon of diesel fuel, and is an integral part of the movement of goods on the domestic and international markets. Prior to 2012, crude oil and its derivatives were not shipped via rail through Washington State. The high output of oil from Canadian oil fields and the Bakken shale formation in North Dakota has exhausted the capacity of crude oil pipelines, leading to the shipment of oil by freight rail within the state as it makes its way to refineries and later ports for export to the international market. The potential export of raw crude oil would likely increase shipments. Local Concerns & Actions Several municipalities within Washington have expressed concern over rapidly increasing oil train movement through their jurisdictions, notably Seattle, Bellingham, and Spokane. Due to local support for greater safety standards for oil rail transport, Washington governor Jay Inslee signed into law House Bill 1449 in May, HB 1449 includes provisions that require facilities that receive crude oil shipments by rail to provide the state Department of Ecology weekly advanced notice of scheduled shipments, giving the Department of Ecology the ability to notify local emergency response commissions of incoming crude oil shipments. HB 1449 also imposes new levies onto oil freight rail carriers for emergency prevention and response funds, and grants the state Utilities and Transportation Commission the authority to enter private property for the purpose of conducting hazardous materials inspections, as well as the authority to inspect and regulate private road crossings of rail lines. 3

4 Seattle City Council has also introduced a resolution supporting Senator Maria Cantwell s Crude-by-Rail Safety Act and calling for the federal government to require rail companies to hold insurance coverage that would pay for all damages resulting from an oil tank car spill. New Tank Car Requirements In an effort to mitigate the impact of future oil rail car derailments, Transport Canada and U.S. DOT, in collaboration with the Greenbrier Companies, introduced new tank car standards: TN/ DOT-117, 117R, and 117P. The new regulations require all HHFT tank cars built after October 1, 2015 to meet the DOT-117 standard, with existing cars to meet the DOT-117R retrofit standard on a two to ten-year schedule based on tank car construction. Greenbrier estimates the total number of flammable liquid tank cars in the North American fleet to be retrofitted or phased out to be 154,500 cars, 87,500 of which are used for crude oil shipments. Greenbrier estimates construction costs of $160,000-$180,000 for each new DOT-117 tank car and $60,000-$80,000 for each DOT-117R tank car retrofit. USDOT 4

5 Conclusions As oil rail freight traffic in the Pacific Northwest region increases, effective management of train movement and regular safety inspections will be paramount to ensuring efficient operation of freight movement and commerce. Railway companies have already begun making investments in equipment safety and operations, and BNSF has indicated that derailments across its network of rail lines are down 78% from Potential challenges for the near future include: - possible changes to rail freight regulations due to legal challenges - overall volatility of domestic and global markets and natural resource supply chains - changes in infrastructure investment Growing public concern over the volatility of Bakken shale crude and the rapid increase of oil freight rail transport has contributed to an overall negative perception of the reliability and safety of oil rail freight, particularly with the continued use of outdated tank cars. However, rail has proven to be a reliable method of long-haul freight movement and plays a crucial role in the global movement of goods from ocean barge to rail freight cars to short-haul trucking. For the foreseeable future Canada and the United States will remain each other s largest trading partner, and in light of recent international economic developments, the transport of crude oil by rail is likely to continue through the Pacific Northwest. All jurisdictions should coordinate with stakeholders along the supply chain to ensure crude oil shipments are handled safely, potential risk is mitigated and local emergency responders are capable of managing technical hazards. 5