(Adds quotes, details on possible retrofits and brakes)
By Kristen Hays
HOUSTON, May 18 (Reuters) - U.S. refiner Tesoro Corp has ordered new crude oil railcars with features that surpass safety standards that federal regulators set this month, executives told Reuters.
The 210 tank cars being built in northern Louisiana are so-called pressure cars, with the same design as those that carry liquid petroleum gases such as propane and butane, gas cargoes that are more flammable than crude oil.
They will be delivered in the coming months after being ordered in early 2014.
The new federal rules for all crude and ethanol railcars built after Oct. 1 of this year do not require strength to the level of a pressure car but are stronger than the standards adopted by the industry in 2011.
Tesoro, like other oil-by-rail players, knew the federal standards were coming and the basics of what they would likely be. But the company went further with a stronger car, “which is the primary thing we control,” C.J. Warner, Tesoro’s head of strategy and business development, told Reuters.
The order was a sign the refiner wanted to get ahead of the coming regulations and avoid potential capacity bottlenecks at companies that build tank cars as shippers must now renovate their fleets.
Booming North American onshore production spurred sharp growth in moving oil by rail, particularly for U.S. West and East coast refiners which otherwise must depend on more costly imports. No major crude pipelines move oil from the Midcontinent west across the Rocky Mountains or east through the Appalachians and densely populated northeastern states.
Fiery derailments, caused in some cases by track failures, have become more frequent as oil-by-rail and crude-only trains carrying 100 cars or more went from nearly nothing five years ago to more than 1 million barrels per day late last year.
Opposition to moving oil by rail spiked on safety concerns, prompting the U.S. Department of Transportation and Canada to impose new railcar safety standards.
Tesoro isn’t the only refiner that didn’t wait for word from the U.S. DOT to order stronger cars.
Phillips 66 confirmed to Reuters that it also last year ordered 350 non-pressurized new cars that mostly match the new DOT standard. Those cars will be delivered by year-end, the company said.
Both sets of new cars have 9/16-inch-thick hulls, steel shields on the front and back and protections for valves and fittings where crude goes in on top and drains out the bottom, as the new rules require, company executives said. Tesoro’s design modifies those fittings to handle crude rather than just LPGs.
Tesoro’s cars also have test pressure specifications of 200 pounds per square inch of internal pressure, twice that for non-pressurized cars. A test pressure is typically 20 to 40 percent of how much pressure it would take for the railcar to burst.
That level of test pressure is standard for cars that transport LPGs or highly poisonous substances such as hydrogen cyanide, according to the Association of American Railroads.
“When we saw the design, we were very comfortable that it would meet the new standards that we anticipated,” John Hack, Tesoro’s head of rail operations, told Reuters.
For Tesoro, which hopes to build the largest oil-by-rail facility in the United States in Washington state, it’s an investment in safety and continued access to cheaper North American crudes.
“It’s very important to us to continue to transport North American crude and get it from the Midcontinent out to the West Coast where it competes very nicely with the foreign crudes,” Warner said.
By last year most refiners, including Tesoro and Phillips 66, no longer accepted shipments in older, weaker railcars such as those used on a runaway crude train that careened into the small Quebec town of Lac Megantic in mid-2013, killing 47 people.
Early last year Tesoro needed to replace the last of its older cars and worked with its builder, Berkshire Hathaway Inc’s Union Tank Car, to develop the new design, Warner said.
Tesoro and Phillips 66 aim to use their newest cars in crude trains before deciding whether to order more. Both companies’ fleets meet the 2011 industry standard for cars with 7/16-inch-thick hulls and reinforced valves.
Those 7/16-inch cars don’t have to be thrown out, but to move in crude-only trains, they will need added protections, including ‘jackets’, or an extra layer of steel around the tank, according to the DOT rules.
Neither Tesoro’s nor Phillips 66’s new cars are equipped with specialized brakes that the DOT said crude-only trains must have starting in 2021 or be held to 30 miles per hour. An oil industry trade group is challenging that provision in court.
Hack said Tesoro is talking with Union Tank Car on possibly outfitting crude railcars to add enhanced brakes before the 2021 deadline.
“We have some time to make that decision,” he said. (Reporting by Kristen Hays; Editing by Terry Wade and James Dalgleish)