New dangerous goods rail-car rules a boon to Delta manufacturer

Railway equipment company set to reap rise in tank car retrofit business

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A Delta railway equipment manufacturer has its eyes on expanded market opportunities resulting from new requirements for rail cars that carry crude oil and other dangerous goods in Canada and the United States.

Railway equipment suppler Kelso Technologies Inc. (TSX:KLS) designs and produces specialized pressure-relief valves for rail tank cars.

The requirements announced May 1 by federal Minister of Transport, Lisa Raitt, and U.S. Secretary of Transportation, Anthony Foxx, call for improvements in tank car valves. Specifications for the new class of rail tank car that transport flammable liquids also require the cars to be manufactured with thicker steel and a jacket with thermal protection.

Estimated cost of the new North American regulations, including refitting approximately 34,850 tank cars in Canada and purchase of 6,265 new tank cars, will be $1 billion over the next 20 years.

Any tank cars used for flammable liquid dangerous goods service manufactured after October 1 must be built to the new standard. Tank cars currently used for crude oil transportation must be upgraded within three years.

Kelso spokesman Maureen O’Hanley Doucette said the May 1 announcement clears the way for the industry to get on with the upgrade of rail company rolling stock on both sides of the border.

“The whole industry has been waiting for this to know what to make: how thick do you want the tank car [walls], how many do we need? The retrofit schedule has been the biggest unknown. There are a lot of unknowns still, but at least everyone can get back to full volume capacity production; it’s like having the brakes taken off now.”

Raitt said the federal government was delivering on a promise made a year ago to develop a stronger, safer, more robust tank car.

Delivery on the promise also comes almost two years after the worst flammable liquids rail accident in Canadian history, which occurred when 72 tank cars derailed in the town of Lac-Mégantic, Quebec, spilling approximately six million litres of crude oil. Seventy-two people were killed in the July 6, 2013, accident.

Since the Lac-Mégantic tragedy, the transportation of oil via rail has risen dramatically as global and domestic demand for North American crude oil and other flammable liquids has grown and the push to diversify the market for Canadian crude oil has increased.

Stalled expansion of pipeline capacity has also increased the use of rail to transport crude oil.

A Transport Canada regulatory impact analysis statement calculated that shipments of crude oil by rail jumped to 160,000 car loads in 2013 from 500 in 2009.

Meanwhile, a C.D. Howe Institute report released in early April estimated that the annual value of rail shipments of energy and resource products in Canada increased to $123 billion in 2014 from $70 billion in 2002.

Rail accidents involving crude oil and ethanol have increased along with the rise in the number of rail cars transporting dangerous goods.

According to Transport Canada’s regulatory impact analysis, there were 144 rail incidents involving dangerous goods in 2013 in Canada, up from 119 in 2012 and up from the five-year average of 133.

It estimated that a typical derailment costs around $13.1 million. The bill for the Lac-Mégantic disaster has thus far been pegged at $1.5 billion.

Kelso maintains that its valve technology is less prone to corrosion and less likely to fail in a derailment than competing valve designs.

In Canada there are an estimated 41,113 tank cars, 28,307 of which are used to transport crude oil.

According to Transport Canada, 34,848 tank cars will need to be upgraded to the new standards.

“The opportunity with the new regulations is the mandate for all of the retrofitting,” Doucette said.

In 2010, the board of directors of Kelso, which had struggled financially during the 2008-09 recession, hired business developer James Bond, now Kelso’s president and CEO, and overhauled company management. The move initiated Kelso’s business turnaround.

According to its most recent annual financial report, Kelso posted 2014 revenue of US$23.8 million compared with US$2.2 million in 2012.

It currently employs 56 people.