NY Times: Outlook for Oil Prices ‘Only Getting Murkier,’ Energy Agency Says

Repost from the The New York Times

Outlook for Oil Prices ‘Only Getting Murkier,’ Energy Agency Says

By Stanley Reed, April 15, 2015
Royal Dutch Shell is expecting prices to recover much of their recent drop over the next few years. It projects prices to hit $90 a barrel in 2018. Chris Ratcliffe / Bloomberg

LONDON — The outlook for oil prices is still uncertain after the sharp fall that began last summer, the International Energy Agency said on Wednesday.

Given the price collapse, “one might be hoping for more clarity on supply and demand,” the agency acknowledged in its monthly Oil Market Report, which was released on Wednesday. “Yet in some ways, the outlook is only getting murkier.”

Oil prices, which have fallen about 50 percent since June, rose after the report and a separate United States government report that said that American crude stockpiles had risen less than expected.

The international benchmark, Brent crude, was up about 3 percent on Wednesday, to $60.35, while its American counterpart jumped more than 5 percent to about $55.97.

The agency’s report reflects a broad debate inside and outside the oil industry about where prices might eventually settle.

Citigroup, for one, expects prices to continue falling in the coming months, as output remains high, supply is building up and investors who had helped prop up prices begin to sell.

“While prices have held relatively firm, there are significant signs of weakness ahead,” Citigroup said in a note to clients on Tuesday.

Royal Dutch Shell, the oil giant that announced an almost $70 billion takeover of the British oil and gas producer BG Group last week, is expecting prices to recover much of their recent drop over the next few years. It projects prices to hit $90 a barrel in 2018.

As the International Energy Agency noted, competing forces are still playing out in the market, making the direction difficult to discern. Low prices have stimulated higher-than-expected demand for oil products in China, India and even Europe, which has been plagued by lethargic economic growth, the agency said. But whether that increased consumption is a “temporary aberration” remains to be seen, it added.

There is much uncertainty, for instance, over future crude demand from China, which on Wednesday reported economic growth of 7 percent, the weakest rate since early 2009.

Supply is also hard to gauge. While there are signs that low prices are beginning to have an impact on the production of oil from shale rock, overall oil output in the United States is expected to grow this year, the agency said.

 

In addition, the Organization of the Petroleum Exporting Countries is showing no signs of backing away from the policy, backed by Saudi Arabia, of holding onto market share regardless of falling prices. OPEC production rose almost 900,000 barrels a day in March from a month earlier, the agency said, as Saudi Arabia increased production to more than 10 million barrels per day.

Among the uncertainties in the market is the potential effect on oil supplies of a proposed nuclear accord with Iran, a major producer, the agency said. International sanctions have sharply reduced the country’s sales of oil, and an accord is expected to ease, or lift, those sanctions.

While it would take time for Iran to organize the enormous investment that would be required to sustainably bolster its production capacity, the agency said that the country might be able to make short-term changes to increase output and exports relatively quickly.

For instance, the agency said, Iran has 30 million barrels of oil stored on tankers, which could quickly feed an increase in exports. The agency also estimated that Iranian oil fields could ramp up production to as much as 3.6 million barrels a day, a 29 percent increase, within months of sanctions being lifted.

Specialists have been working at some of those sites, and “some of Iran’s core fields,” which were run down, may already have been revived, the agency said.

Under the pressure of sanctions, both Iranian production and exports have been curbed. Exports are down about 50 percent since 2012, to an average of around 1.1. million barrels a day, though they rose to 1.3 million barrels a day in March on high demand from China.

 

House bill seeks ban on DOT-111 tank cars for oil trains

Repost from McClatchyDC News
[Editor:   Read the bill on Rep. McDermott’s website.  Track the bill on GovTrac.us.   Authenticated version of the bill is here.    Co-sponsors of the bill include Representatives Jim McDermott (WA-7), Doris Matsui (CA-6), Ron Kind (WI-3), Nita Lowey (NY-17) and Mike Thompson (CA-5).  A similar version of this legislation was filed in the Senate by Senators Cantwell, Baldwin and Feinstein in March 2015.  – RS]

Matsui bill seeks ban on DOT-111 tank cars for oil trains

By Curtis Tate, April 15, 2015

Rep. Doris Matsui, D-Sacramento, on Wednesday introduced a bill to address safety issues with crude oil trains following a series of recent derailments, including an immediate ban on tank cars that are vulnerable to punctures and fire damage.

Matsui cited the multitude of railroad tracks passing through Sacramento, some of which have been used to transport crude oil. The oil shipments have declined recently, but could rise again once new terminals are approved and constructed.

Since the beginning of the year, four oil trains have derailed and caught fire in North America, including derailments in West Virginia and Illinois, and two in Canada.

“Too many of our communities have been devastated by the derailment of a train carrying crude oil,” Matsui said in a statement. “Enough is enough.”

Matsui’s bill would prohibit DOT-111 tank cars from transporting crude oil, set tougher construction standards for new cars than the federal government currently requires, set a minimum volatility standard for oil transported by rail, increase fines and penalties for safety violations, and require that railroads share more information about hazardous shipments with local emergency responders.

The bill, also sponsored by Reps. Ron Kind, D-Wis., and Jim McDermott, D-Wash., is similar to Senate legislation unveiled a few weeks ago by Sens. Maria Cantwell, D-Wash., and Tammy Baldwin, D-Wis.

The Senate bill is also co-sponsored by Sen. Dianne Feinstein, D-Calif. Rep. Mike Thompson, D-St. Helena, is a co-sponsor of Matsui’s bill.

The U.S. Department of Transportation is expected to issue new regulations on oil trains in the next few weeks, once the White House Office of Management and Budget has completed a review. It could be months, however, before those rules take effect.

“With multiple sets of tracks going through our neighborhoods and downtown area,” Matsui said, “the risk of a derailment in Sacramento is too great to ignore.”

IMMEDIATE BAN ON DOT-111 tank cars: Crude-By-Rail Safety Act

From Rep. Mike Thompson’s website
[Editor:  Read the bill on Rep. McDermott’s website.  Track the bill on GovTrac.us.   Authenticated version of the bill is here.    HIGHLY SIGNIFICANT:  Sec. 4. Requires the Secretary of Transportation to immediately prohibit the shipment of oil in all DOT-111 tank cars, and unjacketed CPC-1232 cars.  Allows jacketed CPC-1232 cars to remain in service.  Requires the Secretary of Transportation to prohibit, after 2 years, the shipment of ethanol in all DOT-111 tank cars, and unjacketed CPC-1232 cars.  Allows jacketed CPC-1232 cars to remain in service.  – RS]

THOMPSON INTRODUCES CRUDE-BY-RAIL SAFETY ACT

Apr 15, 2015, Press Release

WASHINGTON, D.C. – U.S. Rep. Mike Thompson (CA-5) today co-authored and introduced the Crude-by-Rail Safety Act which establishes comprehensive new safety and security standards for the transport of crude oil by rail. The legislation is designed to help protect communities along the nation’s railway networks. The legislation comes amid growing concerns that current standards do not address the threat posed by transporting crude oil by rail. Representatives Jim McDermott (WA-7), Doris Matsui (CA-6) and Ron Kind (WI-3), and Nita Lowey (NY-17) introduced the legislation with Thompson.

“Public safety is priority number one when it comes to transporting highly volatile crude oil,” said Thompson. “Railcars transporting crude run through the heart of our communities, and as recent accidents have demonstrated, robust, comprehensive action is needed. The bill introduced today  puts safety measures in place that will help make sure communities are secure, railcars are as strong as possible, and first responders are prepared in the event of an emergency.”

In recent months, the large growth in crude-by-rail transport has led to increased rail traffic and a rise in rail accidents. Four derailments in the US and Canada in under a month earlier this year underscored the urgency of action to curb the risks of transporting volatile crude oil. The legislation introduced today will increase safety standards and accountability.

The Crude-by-Rail Safety Act would establish new, commonsense federal safety standards for railcars transporting oil across the country.  This legislation:

  • Establishes a maximum volatility standard for crude oil (propane, butane, methane, and ethane) transported by rail
  • Prohibits use of unsafe DOT-111 tank cars, including the removal of 37,700 unsafe cars off the rail network
  • Establishes the strongest tank car standards to-date
  • Requires comprehensive oil spill response planning and studies
  • Increases fines for violating volatility standards and hazmat transport standards
  • Requires disclosure of train movements through communities and emergency response plans
  • Requires railroads to implement a confidential close-call reporting systems

Congressman Mike Thompson is proud to represent California’s 5th Congressional District, which includes all or part of Contra Costa, Lake, Napa, Solano and Sonoma Counties.  He is a senior member of the House Ways and Means Committee. Rep. Thompson is also a member of the fiscally conservative Blue Dog Coalition and chairs the bipartisan, bicameral Congressional Wine Caucus.

Academic: Technology can make Crude By Rail safer

Repost from The Conversation US, Boston
[Editor:  On this page I present TWO articles by Bryan W Schlake, Instructor in Rail Transportation Engineering at Penn State Altoona and a former employee of Norfolk Southern Railway.  The first, directly below, explores crude-by-rail risks and seems overly sympathetic to the rail industry.  The second more interesting and informative article, farther below (click here) explores ways to improve crude-by-rail safety.  – RS]

Despite disasters, oil-by-rail transport is getting safer

By Bryan W Schlake, April 14 2015, 5.48am EDT
This derailed oil-carrying train in Ontario in March was the third from a single freight company in a month. Reuters

For many Americans, railroad transportation rarely appears on our mental radar, and when it does, it often comes with a negative context: either we are stopped at a railroad crossing while running late for work or we come across a news article with shocking images of smoke and flames accompanied by reports of exploding tank cars.

Months go by with no thought of railroad transportation, until another derailment occurs, and we again associate trains with fire and danger.

With US crude oil production nearing all-time highs – averaging over 8.5 million barrels per day in 2014 – many are expressing fears about the potential of a crude oil spill in their community. And last week, the National Transportation Safety Board released “urgent” recommendations to promote the safety of shipping crude oil, ethanol and other flammable materials by rail.

What’s behind this rapid rise in oil-by-rail transport? How dangerous is it and can new technology make it safer? To answer these questions, we’ve prepared two articles on transporting oil by rail in the US. The first explores the economic drivers and assesses the rail industry’s record on safety; the second evaluates the technology, research and railroad operating practices that can lead to the greatest level of public good.

By better understanding the underlying issues, we can have a meaningful dialogue and take action towards the common goals of improved safety, security and economic stability.

Economics of oil by rail

Oil production in the US is booming. Last year, for the first time since 1987, annual US field production of crude oil topped three billion barrels, a 170% increase since 2008.

Technological advances such as hydraulic fracturing, or “fracking,” and horizontal drilling allowed for increased production, notably in the Bakken formation in North Dakota. But rail has been integral to the domestic oil surge. It was the availability of low-priced, flexible transportation that allowed crude oil to be shipped to US coastal refineries, creating the market for Bakken oil.

As pipelines quickly reached capacity, oil shippers turned to the railroads, which provided multiple incentives, including: flexibility in shipping options and contract timelines, shorter transit times to the refineries (five to seven days by rail compared with 40 days by pipeline), and the ability to choose which refineries to use. While pipelines allow for higher volumes to be transported, the higher speed afforded by rail results in reduced transit time for long distances.

Association of American Railroads, Author provided | Click to enlarge

As a result, Bakken oil production increased from 81,000 barrels per day in 2003 to more than one million barrels by mid-2014, with more than three-quarters of those barrels moving daily out of North Dakota by rail. While carloads of crude oil increased dramatically, on the whole it still comprises a relatively small portion of total railroad shipments – only about 1.6% of all carloads for US Class I railroads.

Because of increased domestic production and increased imports from Canada, 66% of US oil demand is now sourced from North America, a shift that’s lowered imports and will create billions of dollars in economic activity over the next several decades.

Assessing the risk

While there exists no universally accepted definition of risk, it is widely accepted that the risk associated with transportation of hazardous materials must factor in both the probability of a release of the hazardous material as well as the magnitude of the consequences of that release.

Statistically, the probability of an oil train derailment is very low and lower than other forms of transportation (see figure, below). But the potential undesirable consequences are relatively high, including damage to human life, property and the environment.

A worst-case scenario occurred in the Lac-Mégantic accident of 2013 in Canada, which resulted in 47 fatalities, another 2,000 people evacuated from their homes, almost 1.6 million gallons of crude oil released and millions of dollars in property damage.

Author provided | Click to enlarge

Since 2013, three other notable oil train derailments have occurred in Canada, including recent derailments in Ontario, and seven in the US, including the recent derailments in West Virginia in February and Illinois in March. Using data available from the FRA Office of Safety Analysis, here is a summary of statistics for US crude oil train derailments from 2013 to 2014:

  • eight derailments were reported involving a crude oil release
  • two of these derailments resulted in a release exceeding 450,000 gallons
  • two of these derailments resulted in a release between 15,000 and 30,000 gallons
  • the remaining four derailments resulted in a release of 5,000 gallons or less
  • injuries were reported in only two derailments, resulting in four total injuries
  • no fatalities were reported in any derailment
  • people were evacuated in three of these derailments, with the number of people affected ranging from 16 to about 1,000 people
  • track and equipment damage exceeded $1 million for all derailments, with only one derailment resulting in more than $5 million in damages (damage to private property or depreciation of property values not included).

In terms of hazardous materials risk, the consequence to human life was very low in these US incidents, with zero fatalities and only four reported injuries.

Bigger spills

Environmental and economic impacts, however, were substantial. Recent reports have noted that the amount of oil spilled in 2013 alone from train derailments, at more than 1.1 million gallons, was greater than the total amount of oil spilled from 1975 to 2012. As demand for crude oil shipments has increased, railroads have shifted to using “unit trains” in which nearly every car carries oil instead of the variety of railcar types found on a manifest train. For unit oil trains, the only cars that are not tank cars are the “buffer cars”, typically located in the front and rear of the train to provide an added level of safety for the train crew in the event of an accident.

The use of unit oil trains has resulted in larger amounts of oil being spilled in a single derailment. For example, the majority of oil released in 2013 resulted from only two derailments, occurring in Aliceville, Alabama, in November of 2013 and Casselton, North Dakota, in December of 2013. The recent accident in West Virginia on February 16 of this year likely resulted in a release of similar magnitude to the 2013 spills. The accident in Galena, Illinois on March 5th of this year resulted in a spill of over 200,000 gallons of crude oil released from seven tank cars.

Author provided

The other side of the coin for risk assessment is the probability of release, which is extremely low when compared with other transportation modes. In 2013, which was the worst year to-date for oil train derailments, about 28,000 barrels of oil were released from railroad tank cars out of the approximately 300 million barrels of oil delivered by rail.

In other words, less than one hundredth of 1% of the volume of oil transported by rail in 2013 in the US was released into the environment. According to an analysis of US oil spillage, the amount of oil spilled by railroads per billion ton-mile transported declined by approximately 85% throughout the 1990s and 2000s. By comparison, pipelines experienced closer to a 40% decline in oil spilled per billion ton-miles over the same period. While this report does not include the recent increase in unit oil trains, it does provide a valuable comparison across transportation modes.

Due to changes in safety culture and numerous technological advances, railroads have continued to improve safety over the last decade, with accident rates reaching all-time lows in 2014 at only 2.24 train accidents per million train miles. The industry has been clear about its goal to continue to use new technologies and improved operating practices to drive accident rates even lower, asserting that “No accident, big or small, is acceptable.”

In our next piece [below], we’ll look at some technologies that can improve safety.


PART II …

Repost from The Conversation US, Boston

Shipping oil by rail is booming. Technology can make it safer

By Bryan W Schlake, April 15 2015, 6.18am EDT
The National Transportation Safety Board made an ‘urgent’ recommendation to improve the safety of oil-carrying rail cars. Rick Wilking/Reuters

The Energy Information Administration recently released a map that reflects a massive change to our economy few people appreciate.

The graphic, shown below, shows the latest data on crude oil-by-rail movements around the country and the surge in oil shipments from North Dakota to the different corners of the country. Last year, trains transported more than one million barrels of oil per day in 2014 – a huge jump from 55,000 barrels per day in 2010.

Energy Information Administration | Click to enlarge

This increase in oil-by-rail transportation has come with a number of high-profile derailments, including an accident in Illinois just last month, which have caused substantial economic and environmental damage. Can technology improve safety? Yes. In much the way automobiles are becoming increasingly high-tech, various stakeholders in rail transportation are exploring various technologies to improve safety.

Building a better rail car (and maintaining it)

Railroads have already taken some steps to improve equipment with better braking systems and upgrades to the track infrastructure. New practices can improve safety as well, including better track inspections, speed restrictions for oil trains and choosing routes to reduce exposure to population centers. Railroads have also increased the use of freight car defect detectors installed alongside the the tracks that automatically identify mechanical defects on the railcars based on force, temperature, sound, or visual measurements.

The industry standard needs to be improved, say safety officials, but it’s unclear who will pay for upgrades. Roy Luck, CC BY | Click to enlarge

Many of these technologies are already being implemented by the railroads both to improve safety and to increase economic benefits. In addition to minimizing the safety risk associated with derailments, improved track and vehicle inspection practices help to reduce the potential for delays, which can cost railroads hundreds of dollars per hour.

An economic analysis from 2011 estimated that the annual train delay costs due to railcar defects (resulting in trains stopping unexpectedly enroute) was over US$15 million for all US Class I railroads. For comparison, each year the four largest US Class I railroads spend an average of $35 million on track and equipment damages due to main-line derailments. Thus, the economic drivers behind the reduction of derailments and train delays are quite substantial.

Federal agencies and lawmakers are also working to ensure that federal safety requirements and public policy address the new transportation landscape resulting from the domestic oil boom and increased imports from Canada. The federal government is currently considering new safety standards for improved tank cars specifically designed for the transportation of crude oil.

However, movement towards such legislation has presented considerable challenges due to the fact that the vast majority of tank cars are owned by private companies other than the railroads that transport them.

As a result, questions arise regarding who should bear the economic burden of replacing and/or retrofitting the crude oil tank car fleet. Due to safety and economic incentives mentioned above, some railroads have already begun to purchase their own improved tank cars, but this has not become a universal trend across the industry.

Role of research

Researchers, too, are exploring how technology can improve safety in a variety of ways, including:

Improved Tank Car Design: The Association of American Railroads (AAR) is working to promote tougher federal standards for tank cars carrying crude oil and other hazardous liquids. Extensive research is ongoing both within the Federal Railroad Administration and at various universities to assess tank car safety and develop an optimized tank car design: Cooperative Research in Tank Car Safety Design.

Acoustic bearing detectors, the white-colored machines on either side of the tracks, take sound measurements which allow railroads to predict when railcar roller bearings are beginning to wear out. Bryan Schlake, Author provided | Click to enlarge

Track and Infrastructure Inspection: Railroad track failures have been found to be a leading derailment cause in the US. As a result, railroads have begun to perform more track inspections, including the use of advanced track geometry vehicles – which use laser systems to measure the profile of the rail – on routes carrying crude oil trains. Ultrasonic rail inspection methods as well as ground-penetrating radar systems are also being developed to improve the ability of railroads to detect track defects.

Risk Assessment: Railroad transportation risk research associated with hazardous materials is ongoing. Risk assessment has included rail defect inspection, evaluating routing and train speed, track quality and an integrated framework to reduce risk. This framework addresses operating practices, train routing, infrastructure, and car design to identify the financial and safety risk associated with hazardous materials transport by rail.

Automated Condition Monitoring Technologies: Various wayside detector systems have been developed and installed across the country at locations adjacent to track to assess the condition of locomotive and freight car components enroute. These systems incorporate various technologies to identify critical defects resulting in both safety and economic benefits. Some key technologies include:

  • infrared temperature sensors used to measure overheated wheels/bearings
  • accoustic bearing detectors to identify worn roller bearings in railcars
    High-tech rail: a closer look at an acoustic bearing detector. Bryan Schlake, Author provided | Click to enlarge
  • laser systems to measure wheel profiles and identify worn wheels
  • machine vision systems to detect low air-hoses, structural defects and broken or missing railcar safety appliances
  • load impact sensors to identify damaged wheels that are out-of-round or exhibit flat spots.

Advanced Braking Systems: Both technology and operating practices can play a role in improving braking for oil trains. Some have suggested the use of Electronically Controlled Pneumatic (ECP) brakes. ECP brakes allow for faster application of the brakes on all cars in a train using an electric signal, instead of an air signal, to initiate a brake application.

ECP brakes have been used on a limited basis for coal trains, but the costs have not been proven to justify the safety and economic benefits. A better option may be the use of either:

  1. distributed power, where locomotives are dispersed throughout the train (i.e. front, rear and even in the center) and/or
  2. two-way end-of-train devices (EOTD) that allow brake signals to be initiated from the rear of the train.

Both of these operating practices result in faster braking and reduce “run-in”, where the cars in the front of the train begin braking before those on the rear, causing the rear cars to “run-into” the cars in front of them, creating higher in-train forces. After these measures were proposed by the US Department of Transportation in July of 2014, US Class I railroads agreed to implement enhanced braking in the form of distributed power or two-way EOTDs on all oil trains.

A derailment in Lynchburg, Virginia in 2014 emptied at least one car’s load of crude into the James River Waterkeeper Alliance Inc., CC BY-NC-ND | Click to enlarge

Positive Train Control (PTC): This technology will automatically slow or stop a train to prevent a collision or derailment due to human error, such as speeding or missing a signal. After a federal mandate in 2008, railroads have begun to develop and install this GPS-based safety overlay system, which will eventually cover more than 60,000 miles of track in the US.

Emergency Response: Railroads are working together with various organizations to improve community safety through emergency response training.

Reducing risk

In addition, new technologies are being developed to improve the speed and effectiveness of environmental cleanup efforts. For example, researchers at Penn State University have developed a patented technology called Petro-SAP to absorb oil from the environment after a spill. Technologies like this can be used in the future to mitigate environmental impact of train related oil spills.

While the risk associated with oil train derailments has not been eliminated, the transportation of crude oil by rail has certainly become safer through extensive research, development and implementation of new technologies.

Continued efforts by railroads, government agencies, research institutions and universities will continue to improve the safety of crude oil transportation by rail, reducing risk and potentially alleviating public fears associated with railroad transportation.

For safe and healthy communities…