Trains in Canada derailments carried synthetic crude for Valero
TORONTO, Mar 10, 2015 12:56pm EDT
(Reuters) – The two oil trains that derailed and burst into flames in recent weeks in northern Ontario were both carrying synthetic crude to Valero Energy Corp’s refinery near Quebec City, the U.S.-based company said on Tuesday.
Saturday’s CN Rail derailment came less than a month after another CN train carrying oil went off the tracks and ignited in northern Ontario. The railway had said both were carrying crude from Alberta, but declined to give their exact destination.
“We take safety very seriously, so we’re concerned anytime there’s an incident,” said Valero spokesman Bill Day. “Despite the number of rail incidents recently, it is very rare for cargo not to be delivered to its destination safely.”
Day said all of the rail companies Valero works with, including CN Rail, have good safety records.
Synthetic crude is produced from Alberta’s oil sands in upgrader plants, and usually commands a premium to conventional crudes because it is lighter and easier to refine into valuable byproducts such as gasoline.
Valero’s Jean Gaulin refinery is in Levis, across the St. Lawrence River from Quebec City.
In May 2013, the company said it would build a rail off-loading facility at the Jean Gaulin refinery so it could start using Western Canadian crude rather than relying on pricier imports. The company told Reuters it would take light, sweet Western Canadian crude rather than heavier oil sands crude.
Shipments of North American crude to the refinery ramped up early last year. On a July earnings call, the company said North American grades made up 83 percent of the refinery’s feedstock in the second quarter of 2014, up from 45 percent in the first quarter and 8 percent higher than a year earlier.
Separately on Tuesday, CN spokesman Jim Feeny said the train that derailed in February had been carrying petroleum distillates in addition to synthetic crude.
“The contents of the tank cars are a subject of interest and the TSB will be testing the contents to determine what they were,” said John Cottreau, spokesman for Canada’s Transportation Safety Board, which is investigating the incidents.
In a note to shippers on Tuesday, CN said a temporary bypass track would likely be completed by late afternoon, reopening its main line in northern Ontario.
(Reporting by Allison Martell in Toronto, and Scott Haggett and Nia Williams in Calgary; Editing by Alan Crosby)
Editorial: The real crazy train: moving Bakken crude by rail
Chronicle Editorial Board, October 26, 2014
GOP gubernatorial candidate Neel Kashkari likes to deride Gov. Jerry Brown’s high-speed rail plan as the Crazy Train, but the loonier rail proposal is the one that would carry explosive Bakken crude 1,000 miles across the country to the Valero refinery in Benicia and other California refiners. Californians must have more assurances of safe rail operation before Valero’s oil-transfer-terminal plans proceed.
The City Council of Benicia, a town of 28,000 on the Carquinez Strait, has debated for months a draft environmental impact report on Valero’s plan to modify its refinery to bring in crude by rail. Oil, mostly from Alaska, currently enters the refinery via pipeline from ships docked at the Port of Benicia. Bakken crude, however, must come by rail because no major pipeline runs to the West Coast from North Dakota where it is extracted from the oil shale.
Community concerns include environmental risks but center on public safety because Bakken oil is more volatile than most other crudes. A derailed tanker train loaded with Bakken crude exploded in July 2013, killing 47 people in Canada and alerting transportation officials and the public to the real hazards of transporting this easily ignited oil. For Benicians, potentially explosive trains are no theoretical debate as two 50-car trains would pass daily through the north end of town.
Nor is it an abstract discussion for the residents of Roseville, Sacramento, West Sacramento and Davis, where trains would roll through downtown daily. Davis Mayor Dan Wolk noted: “This may be technically a city of Benicia decision, but no city is an island in our interconnected region. Our community has real concerns about the potential safety impacts.”
So does California Attorney General Kamala Harris, who wrote Benicia officials earlier this month that “the DEIR fails to provide sufficient information for an adequate analysis of the safety risks from transportation or the air quality impacts from refining the new crude. These issues must be addressed and corrected before the City Council of Benicia takes action.” It is unclear whether the state would sue if the city failed to act.
Valero representatives clearly have no interest in expanding the scope of the permitting process to the state. Valero spokesman Bill Day told The Chronicle, “This is really the city of Benicia’s decision.”
Harris also wrote to Benicia that the draft report “ignores reasonably foreseeable project impacts by impermissibly limiting the scope of the affected environment analyzed to only the 69-mile stretch from Benicia to Roseville.” With so many communities affected, the state should stand firm and Solano County should use its authority over the refinery-expansion permits to persuade Valero to negotiate better public safety protections from the railroads, such as state-of-the-art train-control technology.
What’s really crazy is the federal law that allows pre-emption of municipal and state law when it comes to critical decisions on rail safety. Affected communities deserve a say over what rolls through their towns.
Repost from The Wall Street Journal [Editor: Following the money… WSJ’s important analysis of refinery trends in California includes a brief discussion of current and proposed projects, including Valero Benicia, with quotes by Valero spokesperson Bill Day and Andrés Soto on behalf of Benicians For a Safe and Healthy Community. Significant quote: “Opposition over safety has drawn out the permitting process in some cases, making some companies rethink their strategies. Valero Energy Corp. 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.” – RS]
California Finally to Reap Fracking’s Riches
Crude-by-Rail From Bakken Shale Is Poised to Reverse State Refiners’ Rising Imports
By Alison Sider and Cassandra Sweet, Oct. 7, 2014
For the past decade, the U.S. shale boom has mostly passed by California, forcing oil refiners in the state to import expensive crude.
Now that’s changing as energy companies overcome opposition to forge ahead with rail depots that will get oil from North Dakota’s Bakken Shale.
Thanks in large measure to hydraulic fracturing, the U.S. has reduced oil imports from countries such as Iraq and Russia by 30% over the last decade. Yet in California, imports have shot up by a third to account for more than half the state’s oil supply.
“California refineries arguably have the most expensive crude slate in North America,” says David Hackett, president of energy consulting firm Stillwater Associates.
Part of the problem is that no major oil pipelines run across the Rocky Mountains connecting the state to fracking wells in the rest of the country. And building pipelines is a lengthy, expensive process.
Railroads are transporting a rising tide of low-price shale oil from North Dakota and elsewhere to the East and Gulf coasts, helping to keep a lid on prices for gasoline and other refined products.
Yet while California has enough track to carry in crude, the state doesn’t have enough terminals to unload the oil from tanker cars and transfer it to refineries on site or by pipeline or truck.
Just 500,000 barrels of oil a month, or 1% of California’s supply, moves by rail to the state today. New oil-train terminals by 2016 could draw that much in a day, if company proposals are successful.
Bakken oil since April has been about $15 a barrel cheaper than crude from Alaska and abroad, according to commodities-pricing service Platts. That would cover the $12 a barrel that it costs to ship North Dakota crude to California by rail, according to research firm Argus.
The state’s lengthy permitting process has contributed to the shortage of oil-train terminals. Some California lawmakers also want to impose fees on oil trains to pay for firefighting equipment and training to deal with derailments and explosions. And community and environmental activists have been waging war on oil trains. The dangers of carrying hazardous materials by rail were underscored Tuesday when a train carrying petroleum derailed in Canada.
But energy companies recently won two hard-fought victories that will pave the way for California to get more crude by rail.
Kern County officials last month gave Alon USA Energy Inc. 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 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.’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. 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.
Several oil-train explosions in the last 15 months—including last year’s blast in Lac-Mégantic, Quebec, that killed 47 people—have struck fear in many residents along rail corridors.
“These railcars are not safe at any speed,” says Andrés Soto, a musician from Benicia who has helped organize campaigns against several oil-train projects. “We don’t see that there’s any way that they can actually make these projects fail-safe.”
Environmental-impact challenges have been one means that groups have used to delay oil trains.
Pittsburg, Calif., officials say WesPac Midstream LLC’s proposed oil-train terminal is on hold after the state attorney general asked for an expanded environmental review. The company is gathering answers for regulators and hopes to gain approval and start accepting oil trains at the site by late 2016, 40 miles east of San Francisco, a WesPac spokesman says.
Even if oil trains are kept off California tracks, more fracked crude still could flow to California. A 360,000-barrel-a-day oil-train terminal in Vancouver, Wash., aims to transfer North Dakota crude from tanker cars to barges that will sail the Columbia River about 100 miles northwest to the Pacific Ocean. From there, it is a quick trip down the coast to California ports.
That project also has faced stiff headwinds. Refiner Tesoro Corp. and transportation provider Savage Cos. were forced to postpone the start for the Vancouver terminal because of approval delays. While the governor hasn’t approved the project, the companies say they expect to be up and running next year.
HOUSTON — T. Boone Pickens has personified the nation’s oil industry for more than a generation. So when he made an offhand comment at a conference here a few weeks ago expressing reservations about lifting the nation’s ban on exports of crude oil, he startled some of his old allies in the business.
Scott Sheffield, chief executive of Pioneer Natural Resources and one of the top oil executives in the state, picked up the phone to have a chat. “We had lunch and he made sense,” said Mr. Pickens, who has since revised his position.
Chalk one up for the oil producers, who have begun lobbying the Obama administration, Congress and the public to let them export the bounty of crude oil flowing out of new shale fields across the country.
Opposing them are their erstwhile cousins, the independent refiners, who insist that they need abundant, economical domestic supplies of oil so they can compete with foreign refiners.
It is a rare clash in a deeply guarded industry that involves arguments over national security, pricing at the pump and, after all is said and done, who will get a bigger share of earnings from the current drilling rush.
“What we have here is a food fight for the profits that will come either from exports of crude oil or exports of refined products,” said Amy Myers Jaffe, executive director of energy and sustainability at the University of California, Davis, who testified before Congress recently in favor of lifting the ban. “It’s like an argument inside a family business but one that could result in huge market distortions that can either hurt the consumer or our national security.”
Producers like Mr. Sheffield warn that a mounting glut of certain grades of oil in some regions of the country will eventually force a halt to unprofitable drilling if exports are not allowed.
“Nobody wants the collapse of the oil industry,” Mr. Sheffield said in an interview. “You would be importing crude oil from the Middle East all over again.”
On the other side of the debate are some of the nation’s biggest refiners, who argue against unlimited exports of crude oil even as they export increasing amounts of refined products like diesel and gasoline. To their way of thinking, the oil producers are merely trying to increase their profits at the expense of American consumers.
“They are seeking the highest price available,” Bill Day, a vice president at the Valero Energy Corporation, a large independent refiner, said of the producers. “If anything, unlimited exports would raise the price of American crude to the international level, which is why the producers want this step to begin with.”
The debate began in earnest two months ago when Energy Secretary Ernest Moniz suggested at a New York energy conference that it might be time for the country to reconsider the export ban that was instituted in the 1970s, when OPEC oil embargoes threatened the American economy. Congress at the time made oil exports illegal except for some shipments to Canada. The ban on exports of Alaskan North Slope crude was lifted in 1996.
The topic has renewed interest thanks to the oil industry’s reversal of fortunes in recent years. Only seven years ago the country’s domestic oil production appeared to be in a downward spiral. But with the advent of new extraction techniques, entire new fields were opened, replacing oil imports from unfriendly or unruly places like Venezuela and Nigeria.
Suddenly parts of the Midwest and Gulf of Mexico regions are overflowing with superior grades of crude, leading to a slump in prices and a gap of as much as $10 between American oil benchmark prices and the dominant world Brent price.
Even under current restrictions, crude exports are growing quickly. Shipments to Canada have already roughly tripled since 2012 to around 200,000 barrels a day. Some analysts say they think that figure will double by the end of the year.
While the entire oil industry has profited from all the domestic production, which has increased by about 60 percent to eight million barrels a day since 2005, refiners have particularly benefited. American refiners became darlings of Wall Street by buying cheaper domestic crude and now export 3.4 million barrels a day of gasoline, diesel and other refined products, mostly to Latin America and Europe.
Not surprisingly, both the producers and the refiners say they are on the side of consumers and national security, and each side has academic and consultancy reports to back up its position.
The producers argue that if they could freely export, they would increase world oil supplies, forcing down the international Brent benchmark crude price, which in turn would reduce the price of gasoline at the pump. “The American consumer is held captive by the restrained market,” said Jack Ekstrom, a vice president at the Whiting Petroleum Corporation, a major producer in the North Dakota Bakken shale field. “When you have additional supplies coming on to market, the price naturally comes down.”
Executives at the refineries, which struggled for decades, counter that adding another million barrels of United States oil of daily supply to a global market of 90 million barrels a day will make little difference. Instead, they say, domestic crude prices will climb higher and with them gasoline prices.
“The export ban works,” Graeme Burnett, chairman of Monroe Energy, which operates Delta Air Lines’ refinery in Trainer, Pa., told a Senate Energy Committee hearing last month. “We still have a long way to go to protect against oil market volatility and achieve true energy independence.”
Refinery executives concede that they cannot argue against free trade when they are exporting products themselves. Michael C. Jennings, chief executive of the HollyFrontier Corporation, said in an interview that he could support ending the oil export ban as long as other regulations that he said penalize the refiners, including federal mandates for the refining of expensive biofuels, were also reformed.
Such sweeping energy reforms are not likely to be enacted by Congress soon. But in their talks with Commerce Department officials and members of Congress, refiners and producers appear to be closing in on some short-term compromises.
Some executives have suggested that Commerce Department officials could approve swaps of lighter American crudes to Mexico for their heavier sour crudes without violating current oil export regulations. That would give the producers another market and give refiners more oil to process.
There appears to be growing support for recharacterizing condensates, the hydrocarbon liquids used for petrochemical production, from crude to natural gas liquids, so they might be exported under current regulations. That would ease gluts in Rocky Mountain and South Texas fields where drilling has already slowed.
And perhaps more oil could be sent to countries with free trade agreements with the United States.
Such compromises, some executives say, could look something like the arrangements for export of liquefied natural gas from the United States. While gas producers supported exports and some chemical companies opposed them, the Obama administration responded by approving export terminals slowly to gauge the impact on domestic energy prices in the future.
“The middle ground could probably be accomplished without any additional legislation,” said Stephen H. Brown, a vice president for federal government affairs at the Tesoro Corporation, a major Texas refiner, “and I think that is what this administration is probably hoping for.”
Such actions by the Commerce Department, Mr. Sheffield said, could be a “relief valve that would push off the problem for another two years.”
But after that, he and other executives said, the country will probably again face a glut of high-quality crudes if current production trends continue.
A version of this article appears in print on February 13, 2014, on page B1 of the New York edition with the headline: Conflict in Oil Industry