U.S. DOT Emergency Order Impacts Crude Oil Testing, Rail Shipping Requirements

by Cozen O'Connor
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In an emergency order issued on February 25, 2014,1 the U.S. Department of Transportation (DOT) directed all parties offering for transport or transporting petroleum crude oil to ensure that product is properly tested and classified under the applicable federal hazardous materials regulations (HMR)2 prior to shipping. In addition, while the order remains in effect, crude oil shipped by rail may not be designated as Packaging Group III (PGIII), the lowest risk designation. Instead, crude must be designated as Packaging Group I or II, requiring the use of tank cars designed to more stringent standards.

Driving this emergency order is a number of recent high profile rail accidents involving the transport of crude oil from the Bakken fields in North Dakota and Montana. According to the Pipeline and Hazardous Materials Safety Administration (PHMSA), crude from the Bakken has been shown to be more volatile than crude from other plays.3 In August 2013, PHMSA initiated a separate investigation into the classification of Bakken crude, calling the effort both “Operation Classification” and the “Bakken Blitz.” However, while coverage of the emergency order has focused on the connection to the Bakken formation, the emergency order provisions regarding testing apply as written to all crude oil shippers4 and further affect the tank cars that may be used for any crude shipments by rail.

At a minimum, offerors and transporters will need to ensure crude is appropriately tested and classified under the hazardous material regulations before shipment and that results are adequately documented.5 Shippers can no longer rely on outdated material safety data sheets. Testing frequency is not specified in the order, and whether the DOT expects shippers to test a representative sample for each and every bulk shipment of crude oil is unclear. Testing must determine the flash point, boiling point, corrosivity to steel and aluminum, the presence and content of compounds, the percentage of flammable gas, and vapor pressure.

The requirements of the emergency order also may impact the availability of adequate transportation capacity and increase shipping costs, as crude oil may not be shipped in PGIII tank cars while the order is in effect. Tank cars used for transporting hazardous materials designated as PGI and PGII are built to meet DOT specification and typically have a thicker shell, more protective head shields, and additional top fitting protections. Offerors and transporters must also develop a transportation security plan for transporting Class 3 materials designated PGI or PGII.6

Parties affected by the DOT’s emergency order may file a petition for review of the order by March 17, 2014. In the meantime, upstream and midstream companies involved in shipping crude oil should be sure to review procedures for testing and classifying crude oil for shipment, take caution to ensure the commodity is being properly classified under the HMR, and carefully document efforts to comply with the order. The emergency order notes that civil penalties for non-compliance can be up to $175,000 per day for each violation. Criminal prosecutions may result in fines and imprisonment of up to 10 years.

1 Emergency Restriction/Prohibition Order, Docket No. DOT-OST-2014-0025 (Feb. 25, 2014), available here.

2 49 C.F.R. Parts 171-180.

3 Crude oil from the Eagle Ford in Texas has also been suggested as potentially more volatile. Federal testing is still pending. Most oil from the Eagle Ford is transported by pipeline, not by rail.

4 In relevant part, the emergency order provides, “to address the imminent hazard, this Order requires that any person who offers a large bulk quantity of petroleum crude oil into transportation in commerce conduct minimum testing of that petroleum crude oil to verify its classification and to retain records of that testing.”

5 HMR provisions governing testing and classification are found at 49 C.F.R. Parts 172 and 173.

6 49 C.F.R. § 172.800(b).

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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