In the wake of recent freight train derailments involving crude oil, U.S. regulators have issued various advisories and alerts that companies need to incorporate in their assessment of the hazardous nature of their crude oil rail shipments and proper tank car packaging. Specifically, the tragic Lac-Mégantic train accident in Quebec on July 6, 2013, followed by additional crude oil train derailments in the United States, triggered a flurry of regulatory activity designed to increase the safe rail transportation of crude oil.

The Department of Transportation (DOT), through the Federal Railroad Administration (FRA) and Pipeline and Hazardous Safety Administration (PHMSA), have issued multiple safety advisories and a safety alert advising shippers who offer crude oil to rail carriers for transportation to reevaluate their processes for testing, classifying and packaging crude oil. Under DOT regulations, “offerors” of hazardous materials are responsible for properly classifying, describing and packaging hazardous material shipments.

The safety advisories emphasize the importance of proper classification and description of crude oil shipments, including packing group designations under the Hazardous Materials Regulations (HMR). Class 3 crude oil shipments may qualify as packing group (PG) I, II or III depending on the commodity’s characteristics, and the PG designation can affect packaging requirements, trigger safety and security plan requirements, and impact emergency response activities. The increased scrutiny of crude oil descriptions caused some offerors to designate all shipments as PG I, which subjects them to the most stringent HMR rules. The voluntary assignment of PG I to their crude oil shipments was presumed by some offerors to eliminate the need for routine testing of crude oil shipments for classification purposes as required by the HMR.

Noting that Bakken crude may present an increased flammability risk and other hazards, PHMSA later advised in a Safety Alert that it may be prudent to expand crude oil testing to address additional hazards, such as corrosivity, sulfur content and dissolved gas content, even though such testing is not specifically required under the HMR. This raised questions not only as to proper PG designations, but also as to whether all “petroleum crude oil” shipments are appropriately classified as Class 3 material.

On March 6, 2014, the DOT issued an Amended and Restated Emergency Order (DOT-OST-2014-0025), which promulgates binding requirements for rail shipments of crude oil transported in tank cars and provides greater clarity as to offerors’ compliance obligations. First, it requires shippers to properly test and classify their crude oil shipments with reasonable frequency. Second, it requires shippers to treat all PG III crude oil as either PG I or PG II, except for hazard communication purposes. This essentially prohibits shippers from using AAR 211 tank cars to ship crude oil. Finally, it prohibits shippers from reclassifying their crude oil shipments to avoid the order’s testing and PG III requirements. Thus, offerors of crude oil for rail transportation cannot simply designate their shipments as PG I to avoid having to regularly test and class their crude oil.

Although the Amended Emergency Order requires regular testing of crude oil, it fails to establish bright-line testing standards. Instead, the DOT indicated that “testing must have been conducted within the reasonable, recent past to determine flash point and boiling point in order to assign a proper PG”; the “offeror must continue to test with sufficient frequency to ensure data regarding the characteristics of the petroleum crude oil subsequently offered for shipment remain accurate and current”; and the “frequency of testing should account for the variability of the material, including time, temperature, and location of extraction.” Thus, the DOT requires each offeror to evaluate the circumstances and data associated with their individual crude oil shipments and to develop appropriate testing protocols consistent with its broad testing parameters.

In addition to testing to determine PG designation, the Amended Emergency Order suggests additional classification testing. PHMSA issued supplemental guidance on the Amended Emergency Order indicating that testing crude oil for the following hazard classes would be “appropriate”:

▪          Division 2.1 (Flammable Gases)

▪          Division 2.2 (Non-Flammable Gases)

▪          Division 2.3 (Gas Poisonous by Inhalation)

▪          Class 3 (Flammable Liquids)

▪          Division 6.1 (Poisonous Materials)

▪          Class 8 (Corrosive Materials)

Based on the increased regulatory actions described herein, an offeror of crude oil should consider developing a testing program that minimizes compliance risks by obtaining sufficient data to reasonably determine the hazard class and packing group for each of its crude oil shipments transported by rail in tank cars.

The program should test samples in a manner that accounts for all variations of the shipper’s crude oil. For example, it is advisable for a shipper to establish baseline data for the crude oil it ships and factor into its sampling plan that oil from different wellheads and terminal storage tanks may have different characteristics. A shipper’s sampling plan should also reflect that comingled crude oil may not exhibit the same characteristics of its source oils. This would ensure that the shipper has adequate data to properly classify, describe and package each of its crude oil shipments.

Also, the program should call for initial testing at an increased frequency to establish the crude oil’s variability. By evaluating its oil’s variability, the shipper can better determine whether to reduce or increase testing frequency. For example, a shipper who loads railcars from a single storage tank that the same wellheads supply may start testing with increased frequency, but reduce the frequency upon finding that the oil’s characteristics were consistent over the initial testing period.

Moreover, a shipper does not need to conduct all of the required tests at the same interval. If the shipper determines that the variability of certain hazard characteristics is low, the shipper could reduce the frequency of tests for those characteristics. A shipper should not, however, completely eliminate any required testing for the hazard classes that PHMSA identified in its supplemental guidance.

Ultimately, each testing program should be well documented. Each crude oil shipper should document both its test data and its rationale for its testing decisions. If a shipper incorrectly classifies a crude oil shipment, it could use this documentation to establish that its efforts to comply with regulatory obligations were reasonable and seek a mitigated penalty.

The future path regulators will take to address the safety of crude oil transportation remains ambiguous, but it will have significant implications for shippers. Regulators are under intense political pressure to take prompt action to reduce the safety risks of crude oil transportation. Until now, they have addressed these risks primarily through emergency orders, rather than the traditional rulemaking process, since issuing an emergency order allows for a quick response to safety issues. But using emergency orders does not offer a sufficient opportunity for industry input and often results in uninformed regulation.