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Exclusive: North Dakota governor: crude oil railcar safety rules needed now

North Dakota Governor Jack Dalrymple (R) speaks with the media at the FEMA Disaster Recovery Center in Minot, North Dakota, June 27, 2011. R
North Dakota Governor Jack Dalrymple (R) speaks with the media at the FEMA Disaster Recovery Center in Minot, North Dakota, June 27, 2011. R

By Ernest Scheyder

NEW YORK (Reuters) - A month after a train carrying crude oil burst into flames on the North Dakota plains, Governor Jack Dalrymple said on Tuesday that new railcar safety standards were needed immediately, not next year, and he blamed federal officials for delaying regulations.

While Dalrymple has little power over federal officials, his position at the center of the second largest oil producing state with its lucrative Bakken oil patch helps him wield outsized influence in a national debate over the safety of shipping crude oil by rail.

"We do need some kind of provisional standard for the next year," Dalrymple said in an interview on Tuesday. Waiting until as long as 2015 "just leaves a couple of industries guessing."

The U.S. Department of Transportation's Pipeline and Hazardous Materials Safety Administration (PHMSA) has been studying railcar design and the composition of Bakken crude oil after a string of explosive derailments.

Regulators have been trying to understand why Bakken crude seems to be more prone to explode than other types of crude.

What is known, though, is that Bakken crude tends to have higher concentrations of ethane, butane, propane and other natural gas liquids, components that increase flammability.

Yet PHMSA said last week permanent standards for railcar designs that carry Bakken crude are not likely until 2015, leaving companies that make railcars and oil producers, shippers and processors, in limbo and technically beholden to outdated regulations.

Last month, a 106-car BNSF Railway Co train carrying crude oil eastward, crashed into a derailed grain train near Dalrymple's hometown of Casselton, North Dakota.

"Anyone who saw the video of that crash saw the fire that came out and the explosion," Dalrymple said. "That visual picture leaves an impression on anybody, including oil producers."

While no one was hurt in the Casselton incident, last July a runaway train carrying Bakken oil derailed and exploded in the center of the Quebec town of Lac-Megantic, killing 47 people.

There has been broad agreement that newer, safer railcars, with more shielding and advanced valves, are needed to ship crude oil.

TRADE GROUP'S STANDARDS

The Railway Supply Institute, a trade group for tank car owners, urged PHMSA last month to adopt safety standards already put in place in October 2011 by the Association of American Railroads, the rail industry's trade group.

Under those standards, tank railcars known as DOT-111s built after October 2011 should have thicker hulls and reinforced valves to better protect against punctures or leaks in derailments.

Yet retrofitting existing cars takes time and could cost more than $1 billion, the rail industry has said. New cars are being built now using standards their manufacturers think are safest. The possibility exists that DOT's final rules in 2015 could make such cars outdated and illegal, throwing the industry further into a tailspin.

"They say they can't come up with specifics until 2015, and to me that just sounds like a bureaucratic answer," said Dalrymple, a Republican elected in 2010.

Some 71 percent of all oil produced in North Dakota was transported by rail in November, or around 800,000 barrels per day (bpd), according to the state's Pipeline Authority. That compares with 500,000 bpd transported in November 2012, when 58 percent of the oil had been transported by rail.

Dalrymple said he and other North Dakota politicians, including U.S. Senator John Hoeven, would put pressure on regulators to adopt new safety standards.

New tank cars would need extra protection against Bakken crude oil's volatility, widely acknowledged in the industry and touted by some producers as an advantage. Yet that advantage means explosions tend to be bigger and more deadly during derailments.

"There is no question that Bakken crude oil is relatively volatile," Dalrymple said. "It's probably closer to regular diesel than what we think of as crude oil."

The volatility, combined with the derailments, led Robert Harms, the head of North Dakota's Republican party, earlier this month to call for a slowdown in energy development in the state.

The comments were widely seen as heresy in a state that has been economically revolutionized by oil and natural gas development. Indeed, the state government is sitting on a $1 billion surplus, thanks mostly to energy tax revenue.

While the comments were quickly used by environmentalists and others looking to curtail oil drilling, Harms was talking about new safety regulations, Dalrymple said.

"He's clarified his position for me," the governor said.

The energy industry can expect stronger oversight of flaring - the burning of natural gas when no storage options exist - and more-stringent standards for drilling-related spills, Dalrymple said.

"These are things that we're doing because we are trying to reduce impacts on our people and our landscape," he said. "Now someone from the oil industry might say we're trying to slow things down, but that's not the purpose that we start with."

(Editing by Peter Henderson and Grant McCool)

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