Just days after issuing a stringent, yet confusing Emergency Order on the transportation of petroleum crude oil by rail, the United States Department of Transportation (DOT) issued a superseding Amended Emergency Order, dated March 6, 2014, which backtracks and reduces the stringency of its original February 25, 2014 Emergency Order. In its Amended Order, DOT clarified that it is not necessary for shippers to conduct testing on each discrete shipment of petroleum crude oil, provided there is existing information that “the offeror knows to a reasonable degree of certainty is representative and continues to be representative of the petroleum crude oil to be offered for shipment by rail” and that the offeror “continue[s] to test with sufficient frequency to ensure data regarding the characteristics of the petroleum crude oil subsequently offered for shipment remain accurate and current.” The shipping requirements remain unchanged from the original Emergency Order. See our previous GT Alert.

The Department’s Amended Order strikes a more reasonable regulatory balance that is both protective of public safety and more efficient for crude oil transport operations.

DOT issued its Emergency Order, along with previous orders and safety advisories, in response to three major rail accidents involving trains transporting crude oil from the Bakken formation, including a derailment in Lac-Mégantic, Quebec that killed 42 people, with an additional five missing and presumed dead. The investigation into these incidents suggested that misclassification of petroleum crude oil – which is placed into risk categories based on its boiling point and flash point – may have played a role in those tragedies. Dubbed “Operation Classification,” the Department has comprehensively sought to address the potential sources of risk to public safety in the movement of crude oil supplies along the national rail network.

Although regulated parties generally agreed with the DOT that the possibility of misclassification is a serious concern, they were alarmed by the imprecise language of the initial Emergency Order – which required additional testing without specifying which tests should be conducted and at what intervals. Language that suggested that the crude oil must be tested at the point of shipment also created significant implementation problems because it was not consistent with existing testing turnaround times and storage/shipping infrastructure. Most testing is currently conducted at or near the well-head, and key data concerning the flammability of bulk supplies (most crucially, initial boiling point and flash point data) are generally available by the time previously tested supplies reach rail loading areas.

The DOT has now stated that

“[t]his Amended Order . . . does [not] require testing to be performed for each and every shipment.” Instead, those parties offering crude oil for transport by rail may make use of testing data they are already collecting and preparing, provided that each offeror “must determine when it has sufficient data available to reliably classify the characteristics of petroleum crude oil that it intends to offer for bulk shipment by rail and must ensure that the data remains representative of the petroleum crude oil over time.” (Emphasis added).

The Amended Order clarifies that this data-verification responsibility is fulfilled by conducting confirmation testing “with sufficient frequency to ensure that [testing results are] representative of the petroleum crude oil being shipped at any given point in time.” The DOT declined to give more specific instructions because the “frequency of testing should account for variability of the material, including the time, temperature and location of extraction.” When blended sources are being transported, it is necessary that the chosen sampling methods “ensure a representative sample of the entire mixture, as packaged, is collected.”

The Amended Order also makes three less significant changes. First, the Order specifically forbids reclassifying crude oil to circumvent the Amended Order’s requirements. Second, it clarifies that although crude oil may no longer be transported in railcars only approved for use for Packing Group III materials, those supplies “may continue to be described as PG III for the purposes of hazard communication.” Accordingly, Packing Group III materials need not be reclassified; the Amended Order simply modifies the shipping requirements for how Packing Group III supplies should be treated and contained for rail transport.

Third, the original Emergency Order required testing for a series of characteristics not required by the regulations. By contrast, the Amended Order states that “[a]s with other hazardous materials, an offeror of petroleum crude oil must determine all hazardous constituents in order to properly classify and package the petroleum crude oil under the HMR” and then rephrases the testing requirements: “For offerors without sufficient knowledge to classify their petroleum crude oil, in addition to the tests required by this Amended Order, testing to characterize and classify the hazardous materials necessary to comply with the HMR may include, but is not limited to, percentage presence of flammable gases; vapor pressure; presence, concentration and content of compounds such as sulfur/hydrogen sulfide; and corrosivity.”

While the Amended Order still leaves several questions unanswered, it provides improved but not complete clarity and additional guidance to regulated parties.  The Amended Order relieves those offering crude supplies for interstate rail transport of the burdensome requirement of retesting each and every shipment at points in the supply chain where those tests could cause substantial delays, uncertainties, storage requirements, and costs.