UPDATE 3-Canada to phase out crude-by-rail cars early as shipments drop

UPDATE 3-Canada to phase out crude-by-rail cars early as shipments drop

(Adds background on timing of the change, comment from Cenovus and CN Rail)

By Allison Martell

TORONTO, July 25 (Reuters) - Canada will take older tank cars out of crude-by-rail service much earlier than originally planned, its transport minister said on Monday, in the government's latest move to toughen rail safety after a deadly 2013 crash.

The decision, which moves Canada's retrofit schedule further ahead of the United States, was partly prompted by a sharp drop in oil prices since 2014 that has cut the volume of crude transported by rail.

"With fewer cars in use, the industry has more capacity to retrofit existing cars to the current standard," said Delphine Denis, a spokeswoman for Transport Minister Marc Garneau.

Some older tankers, called DOT-111 cars, had been scheduled to go out of service on May 1, 2017. A version jacketed with an extra layer of metal to make it stronger was set to be phased out on March 1, 2018.

Both types of cars will now be taken out of service by Nov. 1, 2016, Garneau said.

Accident investigators have said the cars tend to puncture during derailments, sometimes causing fires. The train that exploded in the Quebec town of Lac-Megantic and killed 47 people in 2013 was made up of DOT-111 tank cars.

Denis said there are about 28,000 affected cars in crude oil service in North America.

The change could reduce risks borne by railways, which typically cannot refuse to ship hazardous goods.

"CN has long advocated for more stringent standards for tank cars and continues to strongly support the aggressive phase out of older, so-called legacy DOT-111 tank cars announced today," said Canadian National Railway Co CNR.TO spokesman Mark Hallman.

Canada's Transportation Safety Board has also raised concerns about the durability of tank cars that meet the newer CPC-1232 standard.

NO SHORTAGE OF CARS

The Canadian policy shift will limit the number of cars that can be used on cross-border routes.

Under a regulation finalized in May 2015, the United States would let DOT-111 cars carry oil in the more dangerous packing group I classification until January or March 2018. It would let crude in the less dangerous packing group II category be transported in DOT-111 cars as late as May 2023.

Tom Williamson, a Florida-based broker and owner of Transportation Consultants, said the new deadlines would not likely lead to car shortages.

"I have never seen so many offers for leases in my career. If we get one request for a lease, I have 15 offers," he said.

Cenovus Energy Inc CVE.TO , which owns the Bruderheim crude-by-rail terminal near Edmonton, Alberta, has already phased out the DOT-111s in its fleet and won't be affected, said company spokesman Brett Harris. (With additional reporting by Jarrett Renshaw in New York and Nia Williams in Calgary; Editing by Jeffrey Hodgson)