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.

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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.

California Rail Bridge Inspections

For more than a century, California has relied on assurances from railroad companies that thousands of rail bridges across the state, from spindly trestles in remote canyons to iron workhorses in urban areas, are safe and well-maintained to handle heavy freight traffic.

That era of trust is over. Concerned about the growing number of trains traversing the state filled with crude oil and other hazardous materials, the California Public Utilities Commission is launching its first railroad bridge inspection program this fall. Federal officials say it will be the first state-run review of privately owned rail bridges in the country.

Too Much LIght Crude Oil Means More Oil Trains by Bloomberg

One of Russia’s prized oils, facing increased competition in Asia, is traveling to a rather unlikely destination: the U.S. West Coast.

As the U.S. threatens PresidentVladimir Putin with further economic sanctions over the conflict in Ukraine, light Sokol oil from Russia’s Far East is showing up in California for the first time in six years. Tankers have been carrying the crude to western states from Korea since May as Asia cherry-picks supplies from a growing pool of sources, including West Africa and Latin America, shipping data compiled by Bloomberg show.

Sokol’s emergence underscores how oversupplied markets have become with light crude as the U.S. produces record volumes from shale formations and reduces imports. The surplus has grown so large that slowing demand in China and other Asian countries mean it won’t be absorbed, according to Barclays Plc. (BARC)

“With China’s economic weakness, they may actually be turning away cargoes,” Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, said by telephone yesterday. “That’s leaving a few orphan cargoes, and it looks like some of them found their way to the West Coast.”

While U.S. companies have been barred from helping drill in Russia’s oil plays, sanctions have so far spared exports of the country’s oil, leaving the door open for Western states.

The region has benefited the least from the U.S. shale boom because it lacks pipeline connections to oil-producing regions like North Dakota. Imports to the U.S. Gulf Coast have fallen by 1.53 million barrels a day in the last five years. Those to the West are up 75,000, government data show.

Tesoro Refineries

The U.S. had stopped importing Russian oil before the May shipment. All of the Sokol, which the U.S. Energy Information Administration describes as prized by Asian refiners for its high yield of jet fuel and kerosene, has been delivered to Tesoro Corp. (TSO) refineries, U.S. Customs data show.

While the crude had been regularly shipped to Hawaii and Alaska because of their proximity to Asia, it’s now showing up in Long Beach, California, as well as Anacortes, Washington. Tesoro declined by e-mail to comment Sept. 30.

“It’s basically light, sweet oil getting translated from North Dakota to California in a real roundabout way,” David Hackett, president of energy markets consulting company Stillwater Associates in Irvine, California, said by telephone Sept. 30.

Sokol is arriving even as the U.S. weighs further sanctions against Russia because of its involvement in separatist violence in Ukraine. European Union and U.S. companies are prohibited from helping drill in Russian deepwater, Arctic offshore and shale plays, and the U.S. Treasury has restricted financing to some Russian companies.

Maximizing Value

“The U.S. has not done any sanctions on flows of Russian crude,” Ed Morse, head of commodities research at Citigroup Inc. (C), said by telephone Oct. 1. “There really is no irony in Russian exporters trying to maximize value by selling crude into the highest-value market.”

The global glut of light oil is depressing prices in Asia, where Arab Light is selling at the biggest discount to benchmark Dubai crude since 2008. Russia’s ESPO, a grade slightly heavier than Sokol, is at a record low. Basrah Light to Asia is the cheapest in four years, and West African differentials were the weakest in about five years in August amid “slack demand,” the Organization of Petroleum Exporting Countries said in a Sept. 10 report.

Adjusting Supply

Even a recovery in demand expected later this year in the Pacific market won’t be enough to absorb the oversupply, Barclays analysts including Michael Cohen in New York said in a research note Sept. 26. “Supply will have to adjust to balance the market,” they said.

Both Iraqi and Iranian oil shipments to China reached records in April, according to China’s customs data. Asia accounted for 68 percent of Saudi Arabia’s oil exports last year, EIA datashow.

The U.S. received the least amount of foreign oil in June since 1996. Net imports will fall below 6 million barrels a day next year as domestic output reaches a 45-year high, EIA forecasts show. Shipments from Nigeria have dropped to zero.

U.S.-bound Sokol cargoes will slow as companies boost the output of oil from Alaska’s North Slope, known as ANS, after seasonal maintenance and more domestic supply makes its way to the region by rail, Barclays’s Cohen said.

Rail Terminals

Alon USA Energy Inc. (ALJ) and Tesoro are among the companies building terminals along the West Coast capable of unloading rail cars of Canadian and U.S. oil. California received 16,373 barrels of crude a day by train in July, a seasonal record, state data show.

“All of that means the portfolio of options for West Coast refiners is, on average, a portfolio that’s getting closer to home,” Cohen said.

The West may be gaining access to so much supply that even demand for its mainstay ANS, a medium-sour oil, is weakening. ConocoPhillips (COP) loaded a cargo of the crude on Sept. 26 for export to South Korea, marking the first of what Morse said will be many bound for Asia to fetch higher prices.

“It’s an interesting parallel that Russia oil is going east and ANS is going west,” he said. “It’s rail and sour crudes coming to the West in greater quantities to escape the glut in the Gulf. If you think about it in terms of all the flows in the world, the West Coast has for the first time seen the spillover.”

To contact the reporter on this story: Lynn Doan in San Francisco at

To contact the editors responsible for this story: David Marino at; Dan Stets at Dan Stets

Montana Oil Trains Haul Grain too

September 28, 2014 6:00 am  • 

GLENDIVE — The rail yard in this Eastern Montana train town is teeming with boxcars bound for the Midwest and West Coast. There are more than 300 cars of coal, 200 cars of grain. Black, jellybean-shaped tankers of Bakken crude linked end to end for more than a mile.

They are all waiting for a turn on the only two parallel steel lines between here and the ports of the Pacific Northwest. The only railroad making that run from start to finish is Burlington Northern Santa Fe, which is laying new track at a breathless pace to catch up with demand, but is still far from its goal. The wait for service lately has been longer than the journey for some.

Shipping might be the biggest challenge for the largest cogs in Montana’s economy. Energy, mining and agriculture make up 32 percent of basic industry earnings in Montana, according to state data. The state’s economy has always run on rails, annually shipping more than $1 billion in farm commodities, $600 million in minerals and chemicals and roughly 40 million tons of coal.

But it’s been tough sledding for BNSF and its customers lately, with thousands of grain cars delayed for weeks at a time, and coal shipments so backed up that energy companies worry aloud about dwindling coal stockpiles and the challenges of keeping the lights on.

The reasons for the congestion are complex. So are the solutions, as BNSF spends $5 billion this year to get service back on track, including $1.4 billion in Montana and North Dakota.

To understand how service got so backed up, one has to understand how quickly demand for rail service mushroomed in the past few years, particularly in oil-rich, farm-rich North Dakota. BNSF’s northern line between Chicago and Portland links Montana and North Dakota like siamese twins.

Oil leads the pack. A U.S. Government Accountability Office report issued Friday cited a sixfold increase in rail shipments of Bakken crude between 2007 and 2012. During that time, the number of crude oil carloads originating in Montana increased by more than 10,000, according to GAO. The number of carloads originating in North Dakota increased by more than 172,000.

Grain shipments also exploded, particularly in North Dakota, where wheat fields converted to corn and soybeans were suddenly yielding more than twice as many bushels as they were when farmers were raising wheat. Corn production went from 104 million grain bushels in 200 to 396 million bushels in 2013. Soybeans harvested went from 59 million bushels to 136 million in the same time period. Wheat production dipped slightly to 276 million bushels, but not enough offset the production gains of crops that replaced it in the field.

By BNSF’s own account, the amount of farm commodities it shipped from North Dakota increased 50 percent from 2009 to 2013. Much of that increase was shipped across Montana bound for grain ports in Washington and Oregon.

Montana shipments also increased, wheat production climbed from 134 million bushels in 2000 to 201 million bushels last year, but the gains paled in comparison to North Dakota’s and ultimately meant the Treasure State had more grain to ship at a time when service was hard to come by.

“Montana was pretty stable, but corn and soybean acres in North Dakota and Minnesota really expanded,” said Lochiel Edwards, who tracks issues for the Montana Grain Growers Association and is a partner in TTMSGroup, which provides shipping analysis.

TTMSGroup concurs that BNSF overlooked the tsunami of the service demand in Northern Tier states and that shippers are now paying the price. But group member Kevin Kaufman, who previously headed up agriculture services for BNSF, recently blogged that just like other companies, the railroad doesn’t always get the future right. The railroad’s planning to meet demand also is complicated by the secrecy of the businesses it serves. Companies don’t like to tip their hand to competitors by sharing their growth projections. That lack of disclosure makes it difficult for the railroad to know exactly how much shipping demand may change.

After more than a year of delays, BNSF, the nation’s largest railroad, is required by the federal government to submit weekly progress reports on moving its grain backlog. Energy companies, with winter around the corner, are champing at the bit for deliveries of Montana and Wyoming coal, while shipments of Bakken crude continue to skyrocket.

Bakken oil shipments are expected to jump another 48 percent by 2019 and remain high through 2040, according to the GAO.

That steady growth has other rail-dependent industries nervous. Energy companies this month warned the rail-regulating U.S. Surface Transportation Board that coal stockpiles at power plants are uncomfortably low as a result of delayed rail service. Rail service has been slowed by construction as BNSF builds its way out of its current jam. Customers seem to acknowledge the construction-related delays are necessary, but there’s worry that unpredictable delays like the extremely cold, snowy winter that compounded shipping problems this year could return.

No one wants to relive the winter of 2014, which left some coal-dependent power companies scrambling to alternatives at the worst possible time.

“Last December, our Leland Olds Station near Stanton, North Dakota, was 19 days from shutting down due to our dwindling stockpile,” said Mary Miller of Basin Electric, a North Dakota-based cooperative that provides electricity to roughly half of Montana’s homes. “To return the stockpile to an acceptable level, we spent 30 days trucking coal to the plant in January and February, hauling up to 250 truckloads of coal per day.”

Basin would like to have 650,000 tons of coal stockpiled at the power plant just to be safe. It’s facing similar concerns at its Laramie River Station power plant in Wheatland, Wyo., which is also dependent on rail shipments. The power plant normally relies on a steady coal supply from 136-car trains. BNSF has assured Basin normal service will return and that service will ramp up this fall to keep Basin power plants supplied.

But coal reserves at power plants around the country are at their lowest levels in 12 years and 21 percent lower than a year ago, according to the U.S. Energy Information Administration. EIA reports that power companies have not only been forced to truck coal, but have also had to shut power plants down because of rail delivery problems. Companies are nervous about another bad winter slowing down rail service.

“We are hopeful this winter will not be a repeat of the last,” Miller said.

Montana has a lot riding on BNSF’s rails, perhaps more than any other state in the Northern Tier because it lacks another full-service railroad. BNSF controls nearly all of the shipping lines through Big Sky Country, with the exception of a short Butte-to-Idaho line run by Union Pacific, and a slight presence by Canadian Rail on the Hi-Line. There is also a Billings-to-Sandpoint, Idaho, line operated by Montana Rail Link, though the independent short-line railroad leases its track from BNSF.

Rail service is so concentrated in Montana that its businesses lacking economically viable alternatives to BNSF are known as “captive shippers” in the parlance of the federal government. Not only are their options limited, but they typically pay a higher rate than customers in states with more rail options, which includes every state Montana borders.

The dependence on the only true long-distance iron horse in the state hasn’t discouraged businesses from saddling up. East of Billings, developers are working on Trialhead Commerce Park, a more than one-mile long rail industrial complex with all the BNSF trimmings. The Big Sky Economic Authority, which services Yellowstone County, expects an announcement about the industrial park’s progress within the week.

In Kalispell, the Flathead Economic Development Corp. is pursuing a funds for a $14.5-million rail park, which organizers are hopeful will spur development along 340 acres of rail-serviced real estate. Great Falls has been developing its Agri-Tech Park rail industrial complex for several years.

Shelby may have the state’s biggest railroad buy of any community, with $17 million in federal grants to provide the infrastructure for a rail park with $254 million in pledged private investments.

Foreign investors have also built eight mega-size grain elevators in Montana in the past four years, each with the ability to rapidly load 110-car grain shuttles in a matter of hours. Each elevator, capable of holding a million bushels of wheat or more, is an investment of roughly $20 million, all predicated on a railroad that delivers grain to Pacific Northwest seaports on time.

That’s a lot of investors with wagers on BNSF’s iron horse to not only show, but win. No community has more on the line than Shelby, which launched its rail industrial park a few years ago after turbines for North Central Montana’s wind farms began rolling into town. Shelby gets 45 to 55 trains a day, according to Mayor Larry Bonderud. The mayor would like to see the number of trains increase to 65, where it was before the Great Recession.

“We’re seeing more agriculture commodities, more value-added ag commodities,” Bonderud said. “We’re seeing coal come up from the south and being interchanged to the Canadian Pacific,” which crossed the border and picks up loads in Shelby.

Bonderud said you could see the rail traffic picking up if you knew what to look for. Not only because oil tankers and grain cars were rolling down the track, but also because recession-idled shipping container cars began leaving the seldom-used side tracks across Montana, which were lousy with the specialty cars used to move shipping containers between Chicago and the West Coast.

Bonderud said BNSF is making the necessary track improvements, none bigger than a 60-mile double-track stretch between Glasgow and Minot, N.D., that allows incoming and outgoing oil and agriculture trains to travel more freely.

On the southern line across Montana, BNSF is expanding rail yards and extending sidings to accommodate more shipments. The sidings allow trains to pull off the main line to let each other pass. Longer ones shorten passing times by as much as 15 minutes, which adds up to hours saved between Montana and Pacific ports.

“There is a lot going on down here on the eastern side of the state with our expansion to help use be more efficient with our meet-pass capabilities,” said Dan Fransen, BNSF’s general manager in Montana.

BNSF is spending $160 million in Montana this year to expand rail capacity, and is also hiring 450 people in the state. The swelling workforce shows in Forsyth, where outside Fransen’s depot office, the company parking lot is full and the pay is well above average for the area. Starting pay for BNSF conductors is $60,000 a year after 13 weeks of training. The only prerequisite is a high school diploma. It doesn’t take too many workers with that size salary to stimulate the economy of a small town like Terry where rail construction is underway.

“It’s been (a) boost with the construction. It started at the beginning of spring, all the way from Glenora on to the Custer County line,” said Jason Smith, Prairie County sheriff. “In the next couple years they’re actually going to be bringing people to town. We’ve had a few BNSF people moving here and buying homes.”

Towns like Terry have centered on the railroad since their creation. This was once a two-depot town with an active grain elevator. In August, BNSF was laying a new siding through town, using a one of a kind track-laying machine to roll out new track at a pace of one tie every seven seconds.

It was August and the combines racing through the wheat fields of this southeast Montana town were breathing down the necks of the local railroad construction crew, which lurched toward the finish line.

Copyright 2014 The Billings Gazette. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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