August 15, 2018 / 5:00 PM / 3 months ago

BNSF adds to restrictions on older oil-tank cars ahead of phase-out -sources

NEW YORK, Aug 15 (Reuters) - BNSF Railway Inc, the largest U.S. railroad, is expanding efforts to remove older oil tank cars from its lines ahead of a federal deadline, according to three people familiar with the matter, adding to restrictions that could worsen transport bottlenecks.

The move by BNSF comes as demand for rail transport is rising, with production in West Texas and Canadian oil fields outpacing pipeline capacity, pressuring crude pricing in several regions. Railroads have been pushing crude shippers to use newer tank cars to reduce liability exposure.

Reuters reported last month that BNSF was cracking down on retrofitted cars known as DOT 117Rs. Sources say the railroad is now putting restrictions on a type known as CPC 1232s.

The sources said the railroad’s actions affect new contracts on both types of cars, not existing ones, and that the railroad is charging higher rates on older cars.

Several shippers in the United States and Canada have experienced difficulties in moving oil in recent weeks, sources said, as the older CPC-1232s cars are restricted on the BNSF network due to the company’s safety concerns.

The rail operator, owned by Warren Buffet’s Berkshire Hathaway, moves more crude oil than any other U.S. railroad, federal data shows, giving it added influence in the market. Roughly 63 percent of the 15,540 tank cars moving crude oil in the first quarter of this year were CPC 1232 models, according to trade group Rail Supply Institute.

BNSF continues to handle all tank cars allowed under federal rules, spokeswoman Jessa Lewis said, “but we are working with our individual customers to facilitate getting the newest and safest tank cars in service sooner on our railroad.”

“Bottom line is, it just adds to the congestion issue,” said Sandy Fielden, director of commodities and energy research at Morningstar.

Oil prices in Midland, Texas, weakened to the lowest in four years against benchmark futures WTC-WTM this week while Western Canada Select (WCS) oil differentials plunged to the lowest in nearly five years this month as pipelines fill.

The U.S. Department of Transportation toughened standards for crude rail-cars in 2015 following a series of fiery derailments. Prior to those rules, refiners and producers voluntarily invested in thicker, safer tank cars known as CPC-1232s.

But federal regulators said the retrofits were not safe enough, and required new tank cars designed with thicker shells and other features, known as DOT 117s. The CPC-1232 models were banned by 2020, unless retrofitted. (Reporting by Devika Krishna Kumar and Jarrett Renshaw in New York; Julie Gordon contributed reporting from Canada; Editing by Dan Grebler)

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