Federal Regulatory Implications of Storing Crude Oil in Rail Tank Cars

The United States is awash in oil.  The Coronavirus Pandemic has collapsed global demand and at the same time recent 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.  Railroads and shippers need to understand the regulatory implications of doing so.

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 period of time.

Storage of a railcar containing crude oil on a “private track or siding” is generally not subject to the HMR.  Under 49 CFR section 171.8, the definition of “private track” or “private siding” is:

(1) 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

(2) 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 side track 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.

For companies considering oil storage in rail cars, federal regulatory requirements do not stop when the rail car laden with crude oil is placed on the private track or siding.  In particular, the U.S. Environmental Protection Agency (“EPA”) Spill Prevention, Countermeasures and Control (“SPCC”) program rules require “facility” owners and operators to develop and implement an SPCC plan addressing various aspects of oil handling and spill prevention, including secondary containment to protect against the discharge of oil into jurisdictional waters of the United States. The SPCC program requires containment volume equal to the greater of the largest single vessel or 10% of the total storage capacity of all vessels at the facility. SPCC plans are required for facilities with at least 1320 gallons of oil storage capacity where oil can reasonably be expected to discharge into jurisdictional U.S. Waters if a spill were to occur.

SPCC rules apply to a very broad range of oil and facilities, including rail tank cars in certain circumstances. As mentioned above, these requirements do not apply to tank cars engaged in transportation activities.  EPA jurisdiction applies, however, when tank cars are serving as non-transportation-related oil storage or if the tank car is utilized exclusively within a non-transportation-related facility. In cases where a tank car is serving as a storage vessel for oil, a single tank car can be considered an SPCC-regulated facility.

SPCC obligations can be enforced against all owners and operators of a facility. In these types of storage agreements, many parties are potentially involved, including the owners of the track, the oil, and the tank cars.  This, of course, calls into question which entity (or entities) is liable for satisfying SPCC requirements.  Careful analysis of the parties’ agreements must be considered (under the Oil Pollution Act, a combination of these entities may share responsibility for a release).  Liability/responsibility for SPCC requirements should be a key term during negotiation of leases for land, tracks and railcars, as well as operating agreements.

Other important factors to consider with respect to SPCC requirements include:

  • How to develop spill prevention and response methods that consider the need for (eventual) car mobility as well as adequate capacity to contain a spill;
  • Whether the cars can be located in areas that prevent discharges to U.S. jurisdictional waters; and
  • Whether an argument could be made that the facility falls within the EPA’s impracticability exception to containment requirements.
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