Any person who offers petroleum crude oil for transportation or who transports bulk petroleum crude oil by rail must comply with a new Emergency Order issued by the United States Department of Transportation (DOT) on February 25, 2014. The Order is effective immediately and is just one of the actions that DOT has taken in the wake of a string of serious mishaps involving the movement of crude oil supplies via railcar. DOT is highly likely to continue to take aggressive enforcement and regulatory actions in an area that is widely viewed as safety-critical.

The Emergency Order requires that petroleum crude oil be tested regularly and for a wider range of characteristics than previously required. It further requires that petroleum crude oil supplies be transported by rail as a Packing Group I or Packing Group II material, even if standard testing shows it is properly characterized as Packing Group III. Non-compliance with the Order can result in a civil penalty of up to $175,000 per day per violation, and knowing, willful, or reckless non-compliance is punishable by up to 10 years in prison, if the non-compliance results in a death or serious injury. 49 USC § 5124.

This Emergency Order applies to the transportation of UN 1267, petroleum crude oil, 3, Packing Group I, II, or III, 49 CFR § 172.101. It does not alter the requirements for testing or transportation of any other flammable liquids, such as gasoline (UN 1203) or propane (UN 1978).¹  Petroleum production and shipment companies, as well as railroad companies, should also be aware that while this order only applies in the United States, Canada has been conducting similar investigations and has also issued new rules regarding rail transportation of crude oil. See Transport Canada Protective Direction No. 31.

Background

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-Megantic, Quebec that killed 42 people, with an additional five missing and presumed dead.

Prior to this Emergency Order, crude was classified into one of three Packing groups, indicating whether the danger from the material being transported was high (I), medium (II) or minor (III). 49 CFR § 172.101(f). This classification was based on the boiling point and flash point of the flammable liquid to be transported, and the regulations specified a list of approved testing techniques. 49 CFR § 173.121. After the Quebec accident, Canadian authorities analyzed the crude from the undamaged train cars and found that it had been misclassified into Packing Group III, which has less stringent safety restrictions.

The February 25th Emergency Order changes the prior system in two ways: (1) it requires more testing; and (2) it requires petroleum crude oil properly classified as Packing Group III to be transported as if it were in Packing Groups I or II regardless of the boiling-point or flash-point characteristics of the material.

The Testing Requirements

The Order’s new testing requirements are vague and may be a source of considerable confusion for regulated stakeholders. Instead of listing a particular set of standard tests with clear frequency and sampling-intensity requirements, DOT simply states that “[a]t a minimum, the tests shall be capable of determining the petroleum crude oil’s flash point; boiling point; corrosivity to steel and aluminum; presence and content of compounds such as sulfur/hydrogen sulfide; percentage presence of flammable gases; and, the vapor pressure at 50°C.” The Order further suggests that “proper” testing must be “conducted with sufficient frequency and quality.”  Unfortunately, the Department offers no further guidance to the regulated community that might illuminate the path to compliance on these important subjects.

The Order does indicate that it is not sufficient to rely on a Materials Safety Data Sheet as a proxy for specific testing. DOT particularly emphasized that it is not sufficient to rely on outdated Materials Safety Data Sheets or on those that had been prepared based on testing of only one of the various sources for the crude in the shipment.

The Order also requires that “any person who offers a large bulk quantity of petroleum crude oil into transportation in commerce . . . must conduct testing of a sample of a bulk quantity of petroleum crude oil being offered into transportation in commerce prior to offering that bulk quantity of petroleum crude oil into transportation.” (Emphasis added.) The Order, however, does not specify how frequently the petroleum crude oil must be re-tested, although it does state that the purpose of the rule is “to ensure that petroleum crude oil offerors are testing the hazardous material regularly and verifying that they have been classified, described and packaged . . . in accordance with the hazardous materials regulations.” DOT gave as an example a situation where crude oil was being stored in above-ground storage tanks at a trans-loading facility, and the storage tanks accumulated truckloads of crude oil from multiple, blended sources. The Department’s view is that whatever previous testing may have been conducted at some discrete wellheads is no longer sufficient to reflect accurately the current properties of the crude stored in the tanks and being readied for transshipment.

The Shipping Requirements

Under the Emergency Order, all crude oil must now be shipped as if it were in Packing Group I or II, and not in accordance with the regulations governing Packing Group III. The industry standard DOT 111 rail cars are still appropriate for shipping crude petroleum, but other cars that are commonly used for shipping Packing Group III crude are no longer allowed. The Order particularly mentioned an incident where Packing Group I crude had been misclassified as Packing Group III and was being shipped in AAR Specification tank cars. Under the Order and until further notice, all crude supplies must now be transported and contained in railcars authorized for Packing Group I or II service.

Conclusion

Companies offering into transportation or shipping UN 1267, petroleum crude oil, 3, PG I, II, or III need to be aware of DOT’s February 25, 2014 Emergency Order and develop a careful plan of compliance. While the Order is confusing and vague with respect to new testing requirements (further clarity should follow soon), the most immediate and obvious impact of the Order is a modification in the modality of railcar shipment of all petroleum crude oil in the United States:  all such supplies must now be strictly transported and contained in railcars authorized for Packing Group I or Packing Group II service. Shipment via railcars authorized only for Packing Group III service (e.g., not qualified for Packing Group I or II service) is now strictly prohibited. Companies should also immediately begin to explore and develop with accredited laboratories, crude oil producers, railroad operators, and others, a set of industry norms and best practices that respond to the DOT’s heightened testing references in the Emergency Order.

_{¹ The DOT, however, continues to conduct investigations and rulemakings, so other interested parties should remain alert.}