Proposed federal regulations on hauling flammable liquids may aggravate a shortage of rail cars for transporting crude oil, The Wall Street Journal reported. (Subscription required.) The proposal could place a high-cost burden on the ethanol industry as well.
Under the proposal, thousands of tank cars may need to be scrapped or redeployed, making it more expensive to ship oil and other fuels at the same time that higher U.S. oil production has caused rail shipments to soar. Waiting times for new rail cars could also lengthen under the new plan.
Recent derailments involving crude oil prompted the Association of American Railroads, a trade group representing the North American railroads, to urge the U.S. Transportation Department to require more safety standards for tank cars carrying combustible liquids such as crude oil and ethanol, reports Forbes.com. Railroads do not generally own tank cars; therefore, retrofitting old tank cars or purchasing new ones will be the responsibility of railroads' customers, such as oil producers or tank car manufacturers.
Demand for replacement cars is likely to collide with the oil industry's increasing need for new cars.The backlog of orders for new tank cars stood at 52,589 at the end of the second quarter, according to the Railway Supply Institute.
Many of the cars that are most at risk of being scrapped under the proposal are owned by ethanol producers. Almost all of the 30,000 tank cars now used haul ethanol would have to be extensively retrofitted or replaced. The government estimates that the retrofits alone would cost the ethanol industry approximately $1 billion.
Industry groups have 70 days to comments on the regulations, which were proposed last month by the U.S. Transportation Department.
U.S. freight railroads shipped about 330,000 carloads of ethanol and 408,000 carloads of crude oil last year, according to the Association of American Railroads and the Renewable Fuels Association.