(John Kemp is a Reuters market analyst. The views expressed are his own)
By John Kemp
LONDON, Jan 6 (Reuters) - The rising number of serious accidents involving oil tank cars over the past 12 months suggests that shippers are underestimating the safety risk of transporting crude by rail.
If the industry and regulators do not resolve these issues promptly, it is only a matter of time before a major disaster occurs in the United States. The resulting political outcry could imperil the business model for oil producers, refiners and rail operators.
In the latest incident involving crude, several tank cars exploded last month following a collision on a remote stretch of line in North Dakota .
U.S. safety regulators responded last week in an urgent safety alert: "The Pipeline and Hazardous Materials Safety Administration (PHMSA) advises emergency responders to be alert to the risks of crude oil transportation due to the increased volume of transportation and the wide range of crude oil properties."
The officials reiterated earlier warnings about the "potential variability" in chemistry of the increasing amounts of oil being transported along U.S. and Canadian rail networks and reminded shippers of their responsibility to test, classify and label shipments correctly.
Like most other countries, the United States requires the labelling and strict control of shipments of crude and refined products - as well as other corrosive, radioactive, flammable and explosive materials - to prevent harm to workers as well as people and buildings along the route.
The most dangerous flammable liquids, based on their flash point and initial boiling point, are assigned to Packing Group I, while liquids posing only moderate and low danger are assigned to Packing Groups II and III, respectively.
Gasoline, for example, vaporizes easily at a relatively low temperature to form a flammable mixture with air, so is normally assigned to Packing Group II.
Crude petroleum, by contrast, is less flammable and seen as a lower-risk cargo, so it is often assigned to Packing Group III. Diesel is also usually placed in Packing Group III.
Hazardous material classifications and packing groups warn railroad workers how dangerous the material is and the sort of dangers they may face in the event of a spill, collision, fire or derailment. They also govern the sort of containers that may be used and the other precautions that must be taken.
Shippers are ultimately responsible for classifying labelling cargoes accurately based on the characteristics of each cargo.
The problem is that unrefined crude is a mixture of different compounds, and its composition can vary quite widely from one field to another, one well to another, and even over time from the same well.
While some of these compounds, such as bitumen, are not very flammable, crude contains others such as dissolved natural gas, which is highly volatile, and hydrogen sulphide, which is exceptionally toxic, flammable and corrosive.
Much of the crude being produced from shale formations is light, so it contains a high proportion of gasoline-range molecules.
In many cases, shale wells in North Dakota and elsewhere are also producing oil that contains large amounts of dissolved natural gas and disturbingly high quantities of dissolved hydrogen sulphide.
Gasoline-range molecules, natural gas and hydrogen sulphide can all come out of solution and vaporise in the empty space at the top of tank cars. If they ignite, they produce enough heat to make the other components of the crude burn.
Crude should therefore be degasified to remove the natural gas and sweetened to remove excess hydrogen sulphide prior to shipping.
At a minimum it must be classified properly so that the risks are understood by handlers. Sour crude containing significant quantities of hydrogen sulphide should be classified in Packing Group I rather than Packing Group III, according to U.S. federal regulations, owing to its toxicity.
But there is plenty of evidence that this has not always been happening as oil producers and shippers rush to carry away the surging output from North Dakota's Bakken fields.
In May 2013, Enbridge introduced emergency rules allowing it to reject some Bakken oil shipments from its pipelines after discovering some crude parcels had 12 times the minimum fatal concentration of hydrogen sulphide.
In July 2013, a train derailment at Lac-Megantic in Quebec produced a fireball and explosion that engulfed the town centre. Shippers, train operators and regulators were surprised by its flammability and explosiveness.
Other derailments and accidents have also produced worrying fires and explosions.
Subsequent analysis of the contents from some of the tank cars left intact after Lac-Megantic showed they should have been assigned to Packing Group II, even though they had been labelled as Packing Group III.
"The lower flash point of the crude oil explains in part why it ignited so quickly once the tank cars were breached," according to Canada's Transportation Safety Board.
INDUSTRY AT RISK
Safety regulators in the United States and Canada have already launched a blitz of unannounced inspections, named "Operation Classification", to check that crude cargoes are being assigned to the proper packing group.
The problem is the extreme variability of the crudes. In some instances, the chemical composition has not been tested properly or has changed significantly since it was last assayed.
"PHMSA is reinforcing the requirement to properly test, characterize, classify all crude oil constituent properties including corrosivity and gas and sulphur content," regulators warned in the safety alert.
"Due to the potential variability of the raw material, PHMSA stresses the importance of adequate and appropriate material testing frequency prior to transportation," they added.
These warnings have been echoed by the Association of American Railroads (AAR), which represents major rail operators in the United States and Canada.
"We are pleased that PHMSA today called for heightened vigilance and attention to the proper labelling of crude oil moving in tank cars. It's critical that railroad employees and community emergency personnel know how to handle or respond in the event of an accident," AAR said on its website.
AAR is right to be worried, because the safety of shipping large quantities of crude by tank car is coming under the spotlight.
In principle, shipping oil by rail is only slightly less safe than shipping it by pipeline. Pipelines cause few spills, and explosions are even rarer, though when they do rupture the amount of oil lost can be substantial owing to the large volumes and high pressure involved.
Spills from tank cars are a bit more frequent but involve smaller quantities.
Historically, there have been few significant spills, fires or explosions associated with shipping crude by rail. But the actual volume shipped and number of tank cars and trains involved were small until recently.
LICENSE TO OPERATE
The safety of shipping large amounts of crude by rail is impossible to judge because there is no experience of doing it on this scale. Yale Professor Charles Merrow made a similar point about the perils of rapidly expanding industries as long ago as 1984 in his book on "Normal accidents: living with high-risk technologies".
The bad news is that the number of serious fires and explosions in the last 12 months suggests shippers and operators are underestimating the danger as the industry rushes to scale up - a classic sign of increasing risk.
The good news is that regulators and rail operators have identified the problem and are taking steps to correct it.
Transporting oil by rail is not inherently unsafe (or at least the risks are no worse than lots of other technologies employed every day). Comprehensive guidelines on safe handling of hazardous cargoes already exist.
But it is vital that everyone in the oil and rail industries understands their importance and implements them conscientiously and that greater attention is paid to safety. Otherwise a major disaster will put the whole oil-by-rail sector at risk. (editing by Jane Baird)
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