The United States is awash in oil. The Coronavirus Pandemic has collapsed global demand and at the same time, increased oil production by Saudi Arabia and Russia has caused oil supply to surge. Facing a potential need for storage, Bloomberg is reporting that oil companies are considering rail cars to store excess crude oil.
The transportation of hazardous materials is governed by federal Hazardous Material Regulations (“HMR”). The Pipeline and Hazardous Materials Safety Administration is responsible for developing and implementing the HMR, but the Federal Railroad Administration (“FRA”) is delegated responsibility to enforce the rail transportation aspects of the HMR. While crude oil is considered in “transportation” it is governed by the HMR until it is delivered to a “private track or siding.” Generally, federal regulations require rail cars loaded with a Class 3 flammable liquid, such as crude oil, to be moved promptly within 48 hours. 49 C.F.R. §174.14. Therefore, federal regulations discourage shippers and railroads from leaving crude oil in transportation for an extended time.
Storage of a railcar containing crude oil on a “private track or siding” is generally not subject to the HMR (but other federal regulations may apply). Under 49 CFR section 171.8, the definition of “private track” or “private siding” is:
- Track located outside of a carrier's right-of-way, yard, or terminals where the carrier does not own the rails, ties, roadbed, or right-of-way, or
- Track leased by a railroad to a lessee, where the lease provides for, and actual practice entails, exclusive use of that trackage by the lessee and/or a general system railroad for purpose of moving only cars shipped to or by the lessee, and where the lessor otherwise exercises no control over or responsibility for the trackage or the cars on the trackage.
The critical factor to determine if the HMR applies to crude oil stored on sidetrack is whether the railroad exercises any control over the track or the cars. Thus, a railroad could not lease access to a set of sidetracks that the railroad also uses because the lessee needs to have exclusive use of the tracks.
Understanding these regulations is crucial for any railroad or shipper intending to lease sidetracks for crude oil storage.