Rail oil tankers, victim of U.S. safety rules, also unwanted in Canada

Thu Aug 14, 2014 3:08pm EDT
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By Patrick Rucker and Nia Williams

WASHINGTON/CALGARY Aug 14 (Reuters) - Thousands of oil train tankers soon to be deemed obsolete in the United States are unlikely get a second life in Canada's oil sands industry, undercutting a U.S. government forecast that the costly cars will continue in use in the energy sector.

If thousands of obsolete tank cars are scrapped, it could add hundreds of millions of dollars to the cost of the proposal, industry officials said - unwelcome news for regulators trying to craft a safety plan that does not add crippling costs to industry.

Regulators on both sides of the border are contemplating rules to prevent oil train accidents like the July 2013 Lac Megantic disaster in Quebec, in which a runaway train loaded with fuel from North Dakota's Bakken oil patch derailed, killing 47 people.

Those plans would modernize the current U.S. fleet of roughly 90,000 tank cars with puncture-resistant shells and other costly upgrades that government and industry sources expect to cost more than $3 billion.

The U.S. Department of Transportation has said the transition will be eased with about 23,000 existing cars going into service to cart Canadian oil sands crude - a molasses-like fuel, bitumen, that is less flammable than ordinary crude oil.

"No cars will retire as a result of this rule," the DOT's Pipeline and Hazardous Materials Safety Administration (PHMSA) said in its oil train proposal released in July.

But industry experts said it is not feasible to simply retrofit the older cars to the specifications needed to carry oil sands, making it likely thousands of cars will be scrapped.

"We don't anticipate we will see the cars here," said Julie Puddell, investor relations manager of Keyera Corp, which operates a loading terminal in Edmonton, Alberta, with Kinder Morgan Energy Partners LP.   Continued...