Oil Trains Have Displaced Coal in Some Locations


The National Oceanic and Atmospheric Administration predicts this winter will be 12% warmer than the last, but that doesn’t mean utilities are looking forward to the coming snow.

From the East Coast to the Midwest, power plant operators are still dealing with the consequences of last winter’s severe weather, leaving them wary that another unpredicted storm like the polar vortex could cause major reliability problems on the grid.

Since last January’s freezing temperatures, utilities have complained of reduced coal deliveries by rail, with some even resorting to burning natural gas—even when it is more expensive—in order to conserve coal for the months ahead.

Buffett’s BNSF ‘struggling’ to deliver coal

Minneapolis-based utility Xcel Energy, which serves more than 3.3 million and operates 12 coal plants, is one power provider with stockpile issues. Most of these issues have to do with a certain rail company owned by Warren Buffett’s Berkshire Hathaway, according to Craig Romer, Xcel’s director of fuel supply operations.

“The BNSF is struggling with increased volumes,” Romer told Utility Dive in an interview. “The Union Pacific [lines] struggled a bit when the weather turned cold at the beginning of 2014. Some of those issues have persisted for BNSF throughout the year. The [Union Pacific] has pretty much turned around most of their issues … The BNSF-served facilities are below the optimal level that we would like to see at this time of year.”

Just last week, a group of coal shippers filed a “strongly worded petition” with the U.S. Surface Transportation Board requesting an order requiring BNSF railways to submit a coal service recovery plan due to delayed shipments.​​

To understand the coal shortfalls, Romer said, you need a “whole year perspective.” In the third quarter of 2013, grain harvests came in higher than anticipated, and that, along with an uptick in customer demand on railways, meant the lines fell behind. Then in January the first round of frigid weather hit—the snow and ice in the Midwest and East Coast “really affected [BNSF’s] ability to serve its customers,” he added.

As the nation dug out from winter in the second quarter of 2014, snowmelt and flooding, along with increased volume, further delayed many shipments. After a slight catchup period in the late spring, Romer said, BNSF’s maintenance and track repair programs created even more severe delays than the weather.

“We really see maintenance activity has impacted the railroad far worse than the polar vortex,” he said.

And it’s not just BNSF. Earlier this month, the rail company Kansas City Southern reported that eight of the nine coal plants it serves had low stockpiles.

Oil and gas crowding coal out on the rails

Weather and repair work notwithstanding, some experts point to other energy resources as a major contributor to low coal stockpiles.

“Basically you can trace [the problem] back to the beginning of the oil and gas boom in the U.S.,” Richard Martin, editorial director and coal expert at consulting firm Navigant, told Utility Dive.

Martin pointed to a recent Government Accountability Office study that shows the number of crude oil rail cars increased from fewer than 50,000 per year in 2010 to more than 250,000 in 2012, only to continue upward. In all, 23 states saw the number of crude oil cars increase by at least 10,000 from 2007 to 2012.

Those numbers may seem insignificant to a rail system that deals with tens of millions of cars each year, but the location matters more than the quantity, according to Xcel’s Romer.

Although he did not have exact numbers, Romer said that in 2009 the number of crude oil rail cars was “very, very, very small in comparison to what it is today.” Back in 2009, about 2% of BNSF’s business was in liquid energy resources, including crude, he said. Today, that number is about 6%.

“Now that doesn’t seem like a lot,” Romer said. “However, it’s very geographically located in the route that our coal trains from Minnesota travel upon … When you take that increase in volume and limit it to a very small area, the impact is significant.”

Even so, Romer cautioned that the oil and gas boom has not been the largest factor in Xcel’s coal shortfalls. “I wouldn’t say it’s the smoking gun that’s caused all of the problems, but it’s a contributing factor.”

The road—or rail—forward

For Martin, the entire coal shortage issue is a red herring. He sees rail congestion as a more serious concern, with its effects on coal being less consequential than other impacts.

“I can tell you that any time you hear a utility start crying about coal shortages, it’s good to take that worth a grain of salt,” he said. “Having said that, I think the immediate congestion problems are real and deliveries are being held up.”

“I think there is this sort of a larger problem of rail congestion in the U.S., which we can talk about,” he continued, citing safety issues involved with transporting crude and natural gas by rail, “but I’m not really that concerned that power plants are going to shut down this winter because of the shortage of coal.”

Indeed, there are signs that some utilities are turning the corner on coal stockpiles. American Electric Power (AEP) sent Utility Dive a statement saying they were no longer concerned about not having enough fuel for winter.

“We don’t have any current coal shortages,” Melissa McHenry, director of external communications, wrote in an email. “There had been some rail delivery issues in past months but we have worked through them.”

BNSF, for its part, said coal deliveries are improving steadily and that it increased deliveries by 5% last week over the week before.

“For the week ending October 21, 2014, we delivered an average daily amount of 790,000 tons of coal, which is up from 753,000 tons delivered on average for the week ending October 14, 2014,” Roxanne Butler, director of media relations, wrote to Utility Dive. “Additionally, we had an average of 1,936 trains on the system for the week ending October 21, which is up from 1,923 the prior week.”

Opposition to California Oil Trains


By San Francisco Chronicle
From page A1 | October 26, 2014 |
By Jaxon Van Derbeken

A plan to bring tank-car trains filled with crude oil from Canada and North Dakota to a Benicia refinery is pitting the Solano County town against Northern California neighbors who say they will be burdened with the risk of environmental catastrophe.

Benicia officials must decide whether to approve a draft environmental impact report on a $70 million terminal at Valero Corp.’s refinery near Interstate 680, where two 50-car oil trains a day would deliver crude.

Supporters and the company say California consumers stand to benefit: With no major oil pipelines running to the West Coast and marine transport both costly and potentially hazardous, they say, rail is the best way to keep local gasoline prices low.

”Right now, that refinery relies on more expensive crude from Alaska,” said Bill Day, spokesman for Valero. “Rail is the quickest, most efficient and safest way of delivery.”

Benicia’s environmental study weighing the risks of the project, however, has done nothing to assuage critics who say the city is downplaying the dangers of delivering oil by rail.

Crude from North Dakota shale is extra-volatile, they say, and the city’s environmental report assessed only the chances of a spill along the 69 miles of track from the Sacramento suburbs to Benicia — not the chance of a catastrophic explosion, or the possibility of an accident of any kind along the more than 1,000 additional miles the trains would have to travel to reach the shores of the Carquinez Strait.

”This project is not in our region — it is outside of our region — but the impacts of the 2.3 million people who live here we view as very significant, very troublesome, very disturbing,” said Don Saylor, chairman of the Yolo County Board of Supervisors and vice chairman of the Sacramento Area Council of Governments, which represents 22 cities and six counties through which the oil trains could travel.

‘A street fight’

Benicia itself is divided by the proposed project. Some locals worry about the environmental risks and traffic problems, while others tout the benefits of low-cost crude to Valero — a company that accounts for a quarter of the city’s tax revenue.

”This is going to be a street fight,” said oil-train opponent Ed Ruszel, whose family woodworking business fronts the railroad tracks next to the refinery. “They have to come across my driveway every day — we’re at ground zero.”

The issue is so contentious that the city attorney recently told Mayor Elizabeth Patterson to stop sending out email alerts about city meetings regarding the oil-train project. According to Patterson, the city attorney warned that her activism could open Benicia’s final decision to legal challenge.

Patterson said she has not taken a stand on the Valero terminal, but that “we need to make sure that just because one industry wants to do something, we don’t ignore the adverse impact to the other businesses and the community.”

She called City Attorney Heather Mc Laughlin’s warning “a blatant effort to muzzle me.” Mc Laughlin did not respond to a request for comment.

For Ruszel and other critics of the project, the danger is real. They cite several recent oil-by-rail explosions, including the derailment of a 72-car train that killed 47 people and wiped out much of the town of Lac-Mégantic in Quebec in July 2013.

The Valero-bound trains would pass through Sacramento, Davis and Fairfield, among other cities, en route to Benicia. Those cities have voiced concerns about the terminal, where trains would deliver a total of 2.9million gallons a day of shale oil and tar sands.

”We have lots of support here from our own local people,” said project critic Marilyn Bardet of Benicia, “but the real difference is that there are so many agencies and people from up rail looking at this problem. We feel exonerated — everybody has chimed in and agreed with us.”

Not everyone along the rail line is against the idea, however. State Sen. Ted Gaines, a Republican who represents Rocklin (Placer County) and is running for state insurance commissioner, called the project “beneficial environmentally and economically.”

It “can be done safely given the prevention, preparedness and response measures in place by both Valero and Union Pacific Railroad,” Gaines said.

More fights to come

The Benicia battle probably will be a preview of numerous local fights over oil trains in California. Oil-by-rail shipments jumped from 1 million barrels in 2012 to 6.3million barrels in 2013, according to government estimates. By 2016, the state could be awash with 150 million rail-shipped barrels of crude a year.

What Benicia does could influence how future oil-train plans play out. Several cities have called on Benicia to require that all train tanker cars have reinforced walls and be better controlled by new, electronically activated braking systems, and that officials restrict what kind of oil can be shipped to Valero.

Such efforts, however, could run afoul of federal law that pre-empts states and local governments from setting standards on rail lines. Valero has already warned city officials that it may “invoke the full scope of federal pre-emption,” a thinly veiled threat to sue if Benicia imposes too many restrictions.

Much of the crude that would arrive via train at Valero is expected to come from the Bakken shale formation in North Dakota. Federal transportation officials recently deemed Bakken crude to be an “imminent hazard” because it is far more easily ignitable than more stable grades of crude previously shipped by rail.

In issuing an alert in May, federal transportation officials warned that oil trains with more than 20 cars are at the highest risk because they are heavier than typical cargo and thus more difficult to control. The federal government is considering requiring additional reinforcement of tanker cars and more robust braking systems.

The federal alert about the danger of crude by rail comes as accidents have skyrocketed, with nine major explosions nationwide since the start of 2013. Last year alone, trains spilled more than 1 million gallons of crude in the United States — 72 percent more than the entire amount spilled in the previous four decades combined, California officials say.

The consultants who wrote Benicia’s draft environmental impact study concluded that because the type of crude that would be brought to Valero is a trade secret, they could not factor it into their risk assessment. They calculated that a major spill on the 69 miles of track between Roseville and Benicia could be expected roughly once every 111 years.

AG weighs in

Among those who think Benicia needs to take a harder look is state Attorney General Kamala Harris, whose office wrote a letter challenging the environmental impact report this month.

Harris’ office says the report’s authors assumed that the safest rail cars available would be used, disregarded spills of fewer than 100 gallons in determining the likelihood of accidents and, in looking only as far as Roseville, ignored 125 miles of routes north and east of the Sierra foothills town.

Some possible routes go through treacherous mountain passes that historically have seen more accidents, say oil-train skeptics. While not specifically mentioning a legal challenge, Harris’ office called Benicia’s study deficient and said it ignored the “serious, potentially catastrophic, impacts” of an accident.

Valero says Harris can voice all the objections she wants, but that she doesn’t get a say on whether the terminal will be built.

”This is really the city of Benicia’s decision,” said Day, the company spokesman. The attorney general and others, he said, are “free to file comments” on the environmental report.

He added that “all the crude oil that Valero ships will be in the newest rail cars, which meet or exceed rail safety specifications.”

”Rail companies have products moving on the rails every day that are flammable,” Day said. “The overwhelming majority of everything transported gets there safely, on time, with no incidents.”

Benicia’s City Council now has to decide whether to order to certify the draft study, order it revised or reject it entirely. When that decision comes, Benicia will be getting a lot of out-of-town attention.

”We have near-unanimity in our region to address the safety issues of the crude-oil shipments by rail,” said Saylor, the Yolo County supervisor. “For us, it has been strictly about public safety. It’s a high-risk operation — we have no choice but to take on this issue.”

Bakersfield, California Rail Terminal


Kern County officials last month gave Alon USA Energy Inc. ALJ +3.63% permission to build the state’s biggest oil-train terminal. That project, which the company hopes to finish next year, is designed to receive 150,000 barrels of oil a day in Bakersfield, Calif., 110 miles north of Los Angeles.
The site was home to an asphalt refinery until 2012 when Alon shut it down because it struggled to turn a profit. Alon plans to reconfigure and restart the plant, but much of the oil transported there by train will move by pipeline to other companies’ refineries in California.
Plains All American Pipeline PAA +0.23% LP says it plans to open a 70,000-barrel-a-day oil-train terminal in Bakersfield this month.
And in northern California, a judge last month dismissed a lawsuit brought by environmental groups that challenged Kinder Morgan Inc. KMI +0.03% ’s rail permits. The company is now receiving oil trains at a Richmond, Calif., terminal near San Francisco that was built to handle ethanol.
Opposition over safety has drawn out the permitting process in some cases, making some companies rethink their strategies. Valero Energy Corp. VLO +3.79% in March canceled plans to build an oil-train terminal near its Los Angeles refinery. But Valero still hopes to add a terminal to the company’s Benicia, Calif., plant, 35 miles northeast of San Francisco.
“Every day that goes by that we’re not able to bring in lower cost North American oil, is another day that the Benicia refinery suffers competitively,” says spokesman Bill Day. The state last month asked Benicia for another safety review to better forecast the potential for derailments and other accidents.

Delays and Oil Trains


There isn’t enough capacity to move oil by train and continue traditional service so the railroad companies are considering expanding. But, they don’t know whether it will be worth it. The oil production isn’t assured. When it ends, there could be overcapacity.

California Oil Train Legislation


By Tony Bizjak
Published: Wednesday, Oct. 8, 2014 – 1:58 pm
California’s two major railroad companies have filed suit in federal court challenging a state law requiring railroads to come up with an oil spill prevention and response plan.

The lawsuit, filed Tuesday in the U.S. District Court in Sacramento, contends federal laws largely prohibit states from imposing safety rules on railroads such as the ones California began imposing July 1 of this year. The plaintiffs in the matter are the Union Pacific Railroad, the BNSF and the Association of American Railroads.

The lawsuit targets sections of a law, SB 861, that require railroads transporting crude oil to participate in a state program that assures financing to clean up crude oil spills. It also requires the railroads to obtain a “certificate of financial responsibility” from the state as proof they have enough money to cover oil spill damages.

“Federal law exempts this entire regime,” the railroads wrote in the lawsuit. The lawsuit argues the federal government already has numerous safety measures in place governing hazardous materials transport.

The main portion of the bill imposes a 6.5-cent fee on oil companies for every barrel of crude that arrives in California on rail, or that is piped to refineries from inside the state. The resulting funds, estimated at $11 million in the first full year, will be allocated for oil spill prevention and preparation work, and for emergency cleanup costs. The efforts will be focused on spills that threaten waterways and will allow officials to conduct response drills.

The railroads do not appear to be challenging the fee, which is directed at oil companies, not railroads. Attorneys for the railroads could not immediately be reached for comment.

Officials with the state Office of Spill Prevention and Response, the state agency listed as defendant, could not immediately be reached for comment.

Call The Bee’s Tony Bizjak, (916) 321-1059.

• Read more articles by Tony Bizjak

Read more here: http://www.sacbee.com/2014/10/08/6770151/railroads-sue-california-over.html#storylink=cpy

Environmental Impact Report for Oil Train


Benicia is conducting an environmental review of a plan by Valero Refining Company to build a crude oil transfer station on its Benicia plant site, so it can transport two 50-car crude oil trains a day through Northern California to the refinery for processing.

In the report, Benicia officials conclude the project’s oil spill risk along the rail line is insignificant. The state Office of Spill Prevention and Response and state Public Utilities Commission already have challenged the report, calling it inadequate. The Sacramento Area Council of Governments has challenged Benicia’s analysis, as well. All three criticize the Benicia report for only looking at the spill risks between Roseville and Benicia, failing to study rail lines all the way to the state border.