Bloomberg on Free-Market Solutions to Oil Trains

Wreckage from the latest oil train explosion hadn’t yet been cleared from the crash site in West Virginia last week when President Obama vetoed legislation that would have approved construction of the Keystone XL pipeline. The timing of the two events crystallizes one of the puzzles at the heart of the U.S. oil boom: How do we move all this new crude around the country?
As production in the U.S. has soared to more than 9 million barrels a day—up from just 5 million back in 2008—the pipeline industry has scrambled to reorient itself around new oilfields in North Dakota and Texas. But railroads have proven more nimble and in many cases beat pipelines to the punch. The amount of crude being moved by trains jumped by almost 5,000 percent since 2009, even though trains are less efficient and typically more expensive than pipelines. Trains offer traders and energy companies something that pipelines don’t: flexibility.
With about 80 percent of the oil trains in the U.S. originating from North Dakota, that flexibility has come in handy in freely distributing Bakken crude across the country. Energy companies can choose whether to send a crude train to a refinery in Philadelphia or to one in Port Arthur Texas, depending on which location offers higher prices. That’s great for markets—and it’s terrible for public safety. Oil trains often travel through densely-populated urban areas on tracks designed to move grain or machinery, not super-volatile crude oil. Yes, pipelines leak and spill, too, but they are widely seen as safer and more reliable than trains.
The only thing standing in the way of a new pipeline boom is the free market
This brings us to one of the more common and unfortunate reactions to the increasing number of oil train explosions: The incorrect argument that these mishaps wouldn’t be happening with such frequency if only Obama would simply approve Keystone XL. But Keystone, whatever its merits, is primarily intended to move crude from Canada. At most, Keystone would move about 65,000 barrels a day out of the Bakken in North Dakota; the other 765,000 barrels of its capacity would be filled with thick Canadian crude coming down from Alberta.
Sixty-five thousand barrels sound like a lot. But North Dakota pumps more than 1 million barrels a day—and about 60 percent leaves by train. Energy companies are free to propose and build any number of new pipelines up to North Dakota so that crude could flow south more safely. As long as the pipelines don’t cross the Canadian border, and there would be no reason for new pipelines to do so, there’s not much the White House could do to stop them.
The only thing standing in the way of a new pipeline boom is the free market. Right now, with oil prices down more than 50 percent from highs reached last summer, companies are understandably wary about investing in a big pipeline projects up to the Bakken. In December, for example, Enterprise Products Partners canceled a proposed pipeline to move oil from North Dakota down to Oklahoma. A similar line was canceled back in 2012 by the Tulsa-based energy company Oneok, at a time when oil prices were about $40 per barrel higher than today.
Not only are investors hesitant to build future pipelines into the Bakken, oil companies aren’t even using all the pipeline capacity that already exists. Only about 45 percent of the total pipeline capacity is being used right now, according to David Vernon, a transportation analyst at Sanford C. Bernstein. “Basically, the reason is that those pipelines don’t go anywhere people want to go,” says Vernon.
The amount of pipeline capacity available to the Bakken has increased from 230,000 barrels per day in 2007 to about 723,000 today. Most of those pipes end up into Oklahoma or Illinois. At the moment, however, traders are most eager to send their crude to the coasts where refiners are keen to get their hands on cheaper domestic oil so they can cut back on more expensive imports from West Africa and the Middle East. And the best way to get American crude to the coasts remains rail. It’s amazing how well the market has responded to that demand: The amount of oil that can be loaded onto trains heading out of North Dakota has jumped from roughly zero in 2007 to more than 1.3 million barrels a day.
Texas, the only state that produces more oil than North Dakota, had a century to build out its oil infrastructure before the shale boom hit. The Bakken, by contrast, basically went from nothing to a gusher. That left a whole lot of oil without a lot of pipes to move it. Since no one was quite sure how long it would last, no one wanted to take the risk of building a big pipeline system to service the area.
Cheap oil only weakens the incentives to build pipelines into North Dakota. At current prices, a lot of wells in North Dakota are no longer profitable. Drilling activity has already declined. Production will likely follow in the next 12 months. That’s hardly a recipe for wanting to build a big expensive capital project. New rules governing the safety of oil trains proposed by federal transportation regulators will likely make crude-by-rail more expensive, once they take effect in the next couple years. Until then, however, the best way to keep trains from exploding is to put that oil into pipelines—and that isn’t likely to happen without higher oil prices.

California is Inspecting Rail Bridges Used by Oil Trains

It’s encouraging that essential actions are becoming taken to make positive oil trains rumbling by means of California don’t derail, but the job is not practically performed yet.

For the initial time, the California Public Utilities Commission plans to check behind security inspections by private railroad providers of rail bridges across the state, focusing on these traversed by trains carrying crude oil.

The commission is deploying two new bridge inspectors – among seven new rail inspectors hired with revenue allocated by Gov. Jerry Brown and the Legislature in response to rising concerns about extra oil trains in California. The two inspectors will probably operate as a group, visiting 4 bridges a week. They will not be doing complete inspections, but rather reviewing that the railroads’ security checks are in proper order.

At that rate, it would take 50 years to check all five,000 rail bridges, as The Sacramento Bee’s Tony Bizjak reported this week. That clearly is not speedy adequate.

So the commission is compiling a priority list of the initial 30 bridges for visits in 2015. Right here are two attainable ones that should really be strongly viewed as: the heavily made use of, 103-year-old I Street Bridge in downtown Sacramento and the Clear Creek Trestle in Feather River Canyon. Each are expected to be on major routes for oil trains.

It’s also significant that state and local officials are pushing for a extra comprehensive threat assessment of Valero’s proposal to run oil trains via Northern California to its Benicia refinery.

Late last month, the utilities commission and the state Office of Spill Prevention and Response joined the Sacramento Location Council of Governments and the cities of Davis and Sacramento in raising issues that the city of Benicia’s draft environmental influence report underestimated the prospective of explosion and fire from two 50-car trains going every day through Roseville, Sacramento, West Sacramento, Davis and other cities. Attorney Common Kamala Harris has jumped on the bandwagon, as well.

For one particular issue, state officials say they want more detail on how Benicia officials came up with a projection that a train derailment would spill 100 gallons or additional of oil only as soon as every 111 years along the 69 miles of track in between Roseville and Benicia.

At the same time, California’s two U.S. senators are pressing federal transportation officials to expand their specifications for railroads to notify first responders of oil shipments. The U.S. Department of Transportation’s emergency order, issued in May possibly, covers only shipments of at least 1 million gallons (about 35 rail automobiles) of crude from the Bakken oil field in North Dakota.

Sens. Barbara Boxer and Dianne Feinstein say that notification ought to be required for any quantity of Bakken, or any sort of crude oil or other flammable liquid, for that matter.

They’re correct. If security is the goal, there’s no logical reason that smaller sized shipments and other kinds of crude aren’t covered. The notification mandate is among proposed rules on oil trains that federal officials strategy to impose by year’s end. They also contain phasing out older rail cars, decrease speed limits and much more extensive response plans for spills.

These federal regulations will come to be even extra vital if California’s two big railroad firms – BNSF and Union Pacific – win their federal lawsuit filed Tuesday that challenges a new state law requiring them to come up with oil spill prevention and response plans. The corporations argue that federal law prevents states from imposing such safety rules.

This is typically how important safety improvements get created – step by step, at different levels of government, with advocates possessing to maintain pushing for stronger protections against market resistance. Every person involved should have a single priority – placing public safety very first and foremost.

Our editors found this article on this site using Google and regenerated it for our readers.

crude oil and flammable liquids

Business Day

North Dakota Regulators Tell Producers to Filter Crude Oil of Flammable Liquids

A tanker truck leaving the depot in New Town, N.D., where crude oil is shipped from the fields.

North Dakota regulators on Tuesday ordered producers pumping oil from the Bakken shale field to begin removing flammable natural gas liquids from their product before shipment in an effort to prevent deadly explosions involving trains.

The Bakken field has played a major part in the spurt of oil drilling that has raised domestic production by more than 70 percent over the last six years. But a series of explosive accidents involving trains carrying Bakken crude, including one last year in Quebec that took 47 lives, has raised fears in many cities where oil trains regularly transit.

Oil companies rely on the trains because the Bakken shale field has been developed so quickly and adequate pipelines do not exist in and around North Dakota.

The new regulations set by the North Dakota Industrial Commission will require producers of Bakken crude to process their product through mandated temperatures and pressures that regulators hope will remove much of the butane, propane and other volatile liquids commonly found in the North Dakota crude.

“The North Dakota Industrial Commission reiterates the importance of making Bakken crude oil as safe as possible for transportation,” the commission, led by Gov. Jack Dalrymple, said in a joint statement after a meeting on Tuesday. “This order will bring every barrel of Bakken crude within standards to improve the safety of oil for transport.”

Once the rules are in force early next year, transported North Dakota crude oil will have a similar volatility to that of automobile gasoline, which should decrease the risk and size of any fire that might occur once a rail car is punctured in an accident, according to state regulators.

City of Benecia, California

The hot national debate over crude oil train safety has taken an unusual twist in the Bay Area city of Benicia, where a blunt-talking mayor’s right to free speech is being pitted against an oil company’s right to a fair public hearing.

This summer, amid tense public debate over a Valero Refining Co. proposal to bring crude oil on trains to its Benicia plant, Mayor Elizabeth Patterson revealed that the city attorney had privately advised her that her frequent public comments about oil transport safety could be seen as bias against the Valero project.

The mayor said the city attorney advised her to stop talking about the oil trains and sending out mass emails containing articles and other information, and to recuse herself from voting when it came before the council.

Patterson, a longtime community planner and environmental activist, is refusing to step aside, saying she has a duty to share information with constituents about the city’s pivotal role in the crude oil debate, one of the biggest environmental fights in the state.


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