Railroads

Growing oil production from domestic and Canadian shales has fueled dramatic increases in the use of rail as a means to move oil to market. As a result, movement of crude by rail has expanded more than forty-fold since 2008. At that time, 9,500 carloads of domestic crude were transported by rail. In 2014, that number reached nearly 500,000. Today, however, it appears that this rapid growth may have plateaued due to increased pipeline capacity, moderating oil prices, and narrower discounts for domestic inland crudes. Regardless, the transport of crude by rail remains a vital infrastructure component simply because additional pipelines from North Dakota to eastern and western destinations will necessitate time to permit and build.

 

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Although the latest data available indicates that railroads and pipelines are the safest and most efficient land mode of crude transport, the rapid increase in petroleum shipments by rail and recent rail-related derailments have elevated public safety concerns regarding shipments of petroleum. As a consequence, the federal agencies which oversee rail transportation continue to work to make this activity as safe as possible with Congress providing ongoing and active oversight.

The U.S. Department of Transportation (DOT), Federal Railroad Administration, Pipeline and Hazardous Materials Safety Administration, and National Transportation Safety Board collectively oversee the transport by rail of petroleum nationwide.

On December 4, 2015, President Obama signed into law the Fixing America’s Surface Transportation Act or “Fast Act” legislation. While the Fast Act’s focus was primarily to ensure long term funding of America’s roads and bridges, it also addressed several important provisions which impact crude by rail operations in the US.

Specifically, the bill directs the National Academy of Sciences and a U.S. Government Accountability Office study of the cost and benefits of pneumatic (ECP) brakes on crude by rail tank cars. If the Secretary of Transportation does not make a final determination on the cost-benefit of the requirement within two years, the ECP brake mandate is repealed. Additionally, the Fast Act required all DOT 117 and non-jacketed DOT 117 R tank cars to have an additional half inch of protective thermal blankets. Finally, the legislation gave the Secretary authority to extend the retrofit deadline schedule for up to two years if tank car manufacturing capacity maxes out.

Tesoro has been an early and active participant in the ongoing discussions about enhanced rail safety. We strive to be industry leaders in operating our railcars in the safest manner possible, and exceed federal safety requirements in several instances. In 2014, Tesoro was the first shipper to voluntarily discontinue our use of older rail tank cars to ship petroleum from North Dakota to the Pacific Northwest and committed to utilize the safest available cars.

As of February 2016, Tesoro has begun to ship crude by rail in its next generation of tank cars. These cars are manufactured to meet or exceed federal regulatory requirements for tank shell thickness, thermal insulation, and bottom outlet valve protection. Finally, Tesoro is vigilantly monitoring the stabilization pressure (volatility) of the petroleum being transported on our fleet and has established an internal volatility threshold more than a year before North Dakota became the first state to mandate one.

Tesoro recognizes that the safe and efficient transportation of crude by rail is a shared responsibility of the railroads and shippers. To that end, Tesoro also believes that the root causes of most train derailments – track integrity and human error – require increased attention from the relevant federal agencies. Tesoro supports a reasonable retrofit schedule for existing rail tank cars that is grounded upon demonstrated repair shop capacity, prioritization of risk, and in accordance with cost/benefit analysis on the types of retrofit being required.

Tesoro is proactively engaged with all interested parties to achieve future safety improvements via regulation, voluntary actions, or both.

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