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Jack Gerard's remarks at press briefing on comments to DOT proposal

Press briefing on comments to DOT proposal
Jack Gerard, API president and CEO
Tuesday, September 30, 2014

Opening statement as prepared for delivery:

Good morning.

Safety is a core value for America’s oil and natural gas industry, and our goal is always zero incidents.

In recent years, railroads have played a significant role in delivering the oil and natural gas from America’s energy renaissance to market, helping our industry to create and support millions of jobs around the country.

North America’s rail network moves hazardous materials without incident 99.998 percent of the time. The challenge for both industry and regulators is to address and eliminate the remaining .002 percent.

Reaching this goal of zero incidents requires a comprehensive approach. We define this as a three-legged stool that focuses on preventing accidents before they happen, mitigating any that occur, and enhancing emergency response.

That is the approach our industry follows when working to enhance safety, and it is the path regulators should take as well with the rules that govern shipping crude oil by rail.

Within this comprehensive framework, PHMSA should focus its actions in areas that good science and data indicate will yield the greatest safety improvements.

And of course, harmony between U.S. and Canadian regulations is critical due to the integrated nature of North America’s freight rail system.

Looking at accident prevention – the first leg of the stool – we support the use of enhanced braking capabilities for trains that carry large volumes of flammable liquids. We also encourage regulators to evaluate whether the development of new standards or processes could reduce the number of accidents that occur.

Another leg of the stool is accident response. PHMSA currently does not provide railroad companies the clarity they need to develop comprehensive and consistent plans for spill response. This is a gap that should be filled.

We encourage PHMSA to provide detailed guidance in this area so the railroads can assess their current plans and ensure they meet or exceed the desired standards.

The oil and natural gas industry has worked closely with the EPA, the Department of the Interior and the Coast Guard on these issues for decades. There is a wealth of knowledge and experience from which PHMSA can pull, and we will gladly make our experts in spill response planning available to PHMSA to aid in this work.

In parallel with DOT’s regulatory efforts, the oil and natural gas industry and the rail industry are also working to engage directly with emergency responders to help ensure they have the training and information they need.

API has devoted the bulk of our efforts to the area where we have the most to offer – mitigation. This leg of the stool encompasses proper testing and classification as well as tank car design. As shippers, this is where the oil and natural gas industry can lead the way and make the greatest impact on safety enhancement.

Last week, API published a new Recommended Practice to provide guidance for anyone shipping crude oil by rail on procedures for sampling, testing and classifying crude.

The development of standards is a major part of API’s ongoing work to lead safety enhancement throughout our industry. Our program is accredited by the American National Standards Institute (ANSI), the same body that accredits programs at several national laboratories.

The ANSI process ensures transparency and accountability in standards development, and more than 100 of our standards have been incorporated into federal regulations.

Our new standard for rail, Recommended Practice 3000, was developed in just a few months by experts from the oil and natural gas industry, the railroad industry, PHMSA and Transport Canada. It represents the best thinking of both the private sector and regulators on the procedures that should be used to ensure proper classification of crude oil for rail shipment.

Development of a standard on the scale of RP 3000 usually takes about two years, but given the value we place on safety, API and our colleagues prioritized our resources and completed the work in about seven months.

We encourage PHMSA to incorporate this new industry standard into its regulations to ensure the greatest possible safety enhancements.

For tank car design, API worked closely with the Association of American Railroads to develop joint comments.

Our commitment to safety has led us to build tank cars since 2011 to voluntary standards that exceed current requirements, and we support additional upgrades to the tank car fleet that will yield meaningful safety benefits.

We believe all existing cars should be retrofitted with advanced pressure relief valves and added protection for the valves on top and bottom. Full-height head shields, jackets and thermal blankets should also be added to non-jacketed cars.

For new construction, we support a car with these same features and a 1/2" thick shell. API has carefully considered one of PHMSA’s proposals to require a 9/16” shell, and our conclusion is that the unintended consequences would negate any additional safety benefit by requiring more trains to pull the same volume of crude.

With the retrofits we outline, cars in the existing fleet should remain in service for their full useful lives.

Due to the limits of shop capacity and other resources, however, the timeline proposed by PHMSA for completing these retrofits is not feasible.

In fact, PHMSA’s timeline could harm consumers by disrupting the production and transportation of goods that play major roles in our economy, including chemicals, gasoline, crude oil and ethanol.

A study by ICF International estimates that the consumer cost impact could reach $22.8 billion over ten years, but that assumes approval of the Keystone XL pipeline. Without Keystone XL, the constraints are even more severe and could cost consumers up to $45.2 billion.

It is no exaggeration to say that, given the shop capacity limitations that exist, PHMSA’s current proposals could stifle North America’s energy renaissance and curtail substantial volumes of U.S. and Canadian oil production.

We have instead proposed an aggressive yet achievable program for retrofitting the crude oil fleet to get stronger cars onto the tracks as fast as possible while limiting the most adverse economic consequences for consumers.

Under our proposal for the crude oil fleet, manufacturing facilities would have six to twelve months to ramp up capacity for handling retrofits. The legacy DOT-111 fleet moving in unit trains of crude oil would then be retrofitted or replaced within three years. Retrofits of the stronger, non-jacketed cars constructed since 2011 would be completed after an additional three years, allowing these cars to continue delivering energy to consumers during the retrofit period for the legacy fleet.

In our discussions with the railroads, we also recognized that if DOT addresses other commodities simultaneously, shop capacity limits would require this schedule to be extended.

While tank cars are an important part of the comprehensive approach to safety, there are limits to what tank car design can achieve. Getting to zero incidents will take an equal effort to prevent accidents and improve accident response.

API supports a rule that ultimately improves the safety of rail transportation in North America through a holistic approach while allowing for the continued growth of the energy renaissance that has created and supported millions of jobs across the U.S. and Canada.

We are working cooperatively with regulators and the railroad industry in both countries to find the best path forward, as evidenced by the collaborative development of our new industry standard, our joint oil and rail program to train firefighters, and API’s joint development with AAR of comments related to tank car design.

If all stakeholders continue to work from a strong foundation of science and data, I am confident that our joint efforts to better prevent, mitigate and respond to accidents will enhance the safety of shipping crude oil by rail.

That concludes my opening remarks, and I am now happy to take your questions.