Bakken crude: Could pipelines replace the need for oil-by-rail?
By Zach Koppang, August 14, 2015
The transportation of Bakken crude is beginning to shift away from the railways and into pipelines as production levels off in the wake of last year’s price collapse and more oil and gas pipelines are brought online.
Rusty Braziel, analyst with RBN Energy, explained, “Since 2012 a combination of rail and pipeline has given Bakken producers ample crude takeaway capacity, but pipelines alone have not had sufficient capacity on their own.” Though, as production maintains a consistent rate, pipeline capacity is beginning to catch up. Braziel added, “By 2017 there should be enough pipelines to carry all North Dakota’s crude to market.”
Last week Continental Resources reported that it now ships over two-thirds of its Bakken crude by pipeline, reports Reuters. In the second quarter 2015, the company, North Dakota’s second-largest producer, pushed approximately 160,000 barrels of crude per day through Kinder Morgan owned pipelines. For comparison, it shipped nearly all of its oil by train in 2014. During a conference call, Continental CFO John Hart said, “Approximately 70 percent of our Bakken production is now delivered to market via pipeline.”
Director of RBN Energy Analytics Sandy Fielden said, “As soon as price differentials – especially between domestic benchmark West Texas Intermediate (WTI) and international benchmark Brent – narrowed, then barrels shifted back to pipelines to take advantage of their cheaper tariff rates. Yet significant crude volumes continued to be transported to market from North Dakota by rail because pipeline capacity could not handle the demand.” Recently, however, the planning and construction of new pipelines throughout the region has substantially increased overall shipping capacity, threatening the once booming business of BNSF Railway and others.
The trend is becoming more common as oil producing states, North Dakota included, begin to rely more heavily on pipelines rather than rail transport, which is vulnerable to weather, construction delays and bottlenecks. Transporting oil-by-rail has also become heavily scrutinized following a series of explosive, and sometimes deadly, oil train derailments. The most notable incident occurred in Lac-Megantic, Quebec, where a runaway oil train derailed and killed 47 people. The frequency and severity of derailments has led to increased scrutiny and regulation, much to the dismay of the rail industry.
However, Fielden explains, “Just because pipeline capacity is available doesn’t necessarily mean producers will prefer to use that capacity instead of rail.” Over 1 million barrels of oil per day continue to ride U.S. railways en route to refineries on the east and west coasts. Tesoro and BP, for example, opt to receive oil via rail due to the flexibility of the supply contracts when compared to pipeline shipments.
The RBN analysis reports that in theory, as new pipeline projects come online, all Bakken crude could be shipped to market via pipeline. Projects due to begin operating by the end of 2016 and throughout 2017 will expand takeaway capacity by 680,000 barrels per day. Fielden said, “The planning and buildout of a series of new pipelines out of North Dakota that (if they are all built) should increase capacity enough to provide space for all the barrels currently traveling to market from North Dakota by rail.”
CONCORD — A mysterious earthquake fault slices under central Concord, its jagged, quarter-mile-wide seam running beneath a critical fuel-pumping facility, traversing the edge of a refinery processing 166,000 barrels of crude oil daily, and undercutting strip malls and homes.
While its big sisters, the San Andreas and Hayward fissures, grab the headlines, the Concord Fault — with its 11-mile-long fracture zone stretching from the Carquinez Strait to the Mount Diablo foothills — is also capable of producing a catastrophic earthquake, geologists say. And with critical infrastructure in its path, particularly refineries and a vulnerable railroad bridge not far away, a large seismic event could leave the entire northern half of the state without easy access to fuel — disrupting transportation and the transmission of electricity and water, according to a recent study.
The Concord fissure may be largely ignored by the general public. But not by geologists.
“The Concord Fault is significantly more active than the fault that caused the Napa earthquake,” said Chris Wills of the California Geological Survey, referring to the 6.0 wine country temblor last August that caused more than $400 million in damage. “Nobody would be surprised if a magnitude-6 earthquake happened on the Concord Fault tomorrow.”
Make no mistake, Concord’s contribution to the Bay Area’s geologic activity is significantly smaller than the San Andreas and Hayward zones. Updated U.S. Geological Survey estimates indicate a 3 to 4 percent probability of a magnitude-6.7 or higher earthquake over the next 30 years on the Concord or lower Green Valley Fault, a connected Solano County segment, compared with 6.4 percent for the San Andreas and 14.3 percent for the Hayward Fault.
The Concord Fault creeps a measly 4 to 5 millimeters annually, while the Hayward slips 9 millimeters and San Andreas 25 millimeters.
The last catastrophic temblor on the Contra Costa-Solano combo fault struck more than 400 years ago, but geologists still say it’s important to monitor.
“At some point in time that system has to fail — we just don’t know exactly when,” said David Schwartz with the USGS. Even if the Concord Fault only produces a 5.0 quake, it could cause significant damage, Schwartz said.
The great unknown
On Oct. 23, 1955, a 5.4 quake — the Concord Fault’s last major temblor — was felt from San Jose to Sacramento. It caused $1 million in damage ($8.7 million in today’s dollars) and one fatality, according to the USGS. Windows shattered, brick walls cracked and moved, chimneys shifted and wine bottles crashed from liquor store shelves.
What makes the Concord Fault particularly worrisome to regional planners, so much so that it was highlighted in a December study by the Association of Bay Area Governments, is its potential impact on regional and statewide fuel distribution. Without gasoline, every other crucial need, including water, electricity and transportation, will be affected.
In its report, ABAG studied three theoretical earthquakes — a 7.9 on the San Andreas, a 7.0 on the Hayward and 6.8 on the Concord.
“Originally, we were just going to explore the San Andreas and Hayward faults, but we realized that (there are) a lot of key infrastructure assets in (the Concord) region,” said study author Michael Germeraad, an ABAG resilience planner.
Five Bay Area refineries — all but two are within a couple miles of the fault — processed 235 million barrels of crude in 2012, about 40 percent of the state’s total, according to ABAG. In addition, Kinder Morgan operates a pumping station nearby that receives processed crude from all the refineries and pipes it out to terminals across Northern California and Nevada.
That pumping station, a critical piece of fuel infrastructure, lies directly above the Concord Fault.
Built in the 1950s, the station receives products from eight facilities and pumps the refined crude through pipelines. It can store about 1 million barrels, but normal inventory is half of that, said Melissa Ruiz, a Kinder Morgan spokeswoman. Its five outgoing pipelines serve Chico, Fresno, Reno, Sacramento, San Jose, Stockton and surrounding cities, in addition to seven military facilities and public airports.
The company has facilities and pipelines in active fault areas throughout California but has never lost a pipeline or tank to a quake and maintains its infrastructure to industry rules and regulations, Ruiz said.
In its report, ABAG said it had concerns because pipelines can fail due to soil liquefaction — where hard soil loses strength during strong ground shaking — and fault rupture. Knowing pipeline material, age, weld types and other factors would help scientists know where failures are “more likely,” but that information isn’t available.
“Damage to the Concord station would interrupt fuel transmission across the northern half of the state,” the report concluded.
The study also found that if one Bay Area refinery was damaged, they would all likely suffer damage because of their close proximity to each other, and because they are built on similar soils and have similar construction.
“A conservative restoration estimate of damaged refineries is months,” the study found for the Concord quake scenario.
The Tesoro Golden Eagle facility in Martinez sits on 2,206 acres just feet from the fault. Built in 1903, Golden Eagle employs about 650 workers and is the fourth-largest refinery in California.
Spokeswoman Patricia Deutsche said refinery officials are aware it sits next to the fault and a liquefaction zone, but she said the facility follows industry design standards. Piles are driven down hundreds of feet into bedrock, equipment has been retrofitted and the Avon Wharf, an oil terminal located on aging timber piles along the southern shore of Suisun Bay, just received environmental clearance for retrofit up to state quake standards, she said.
Seismic assessments of Bay Area refineries are done every five years, and the building code requirements consider the level of possible ground shaking from any nearby fault, said Gayle Johnson, senior engineer with Simpson Gumpertz & Heger, a national engineering firm.
Johnson, who has investigated the performance of industrial facilities in more than 20 earthquakes worldwide, said since the refinery retrofit programs began in the late 1980s and early 1990s, there has been a “ton of upgrade work done.”
While fuel infrastructure may be the top concern for the region, a large quake could disrupt other major lifelines. The Benicia-Martinez rail bridge, located between the two vehicle spans, is particularly vulnerable, according to ABAG, and could face “significant or complete damage.”
Liquefaction along the Carquinez Strait could cause dredged water channels to slough into the shipping pathways. Runways could rupture at Buchanan Field, which sits adjacent to the fault. Delta levees could breach, creating flooding and impacting drinking water quality, ABAG found.
Two-thirds of the power generated in the region is produced by natural gas facilities, many along the Carquinez Strait.
“In the event natural gas lines are damaged, these facilities will be unable to generate electricity,” the study found.
Still, Wills warns that what will happen during a significant quake on the Concord Fault is largely a mystery.
“How it releases is not that well known,” he said.
Richmond: Judge tosses out suit seeking to stop crude oil shipments by rail
By Tom Lochner, Contra Costa Times, 09/05/2014
SAN FRANCISCO — A lawsuit by environmental groups seeking to stop shipments of crude oil by rail to Richmond was tossed out by a judge Friday on the grounds that it was filed too late.
Communities for a Better Environment, Asian Pacific Environmental Network, Sierra Club and Natural Resources Defense Council sued the Bay Area Air Quality Management District in March. The suit involved a Feb. 3 permit issued to Kinder Morgan to receive crude oil by rail at its Richmond trans-loading facility along the BNSF Railway tracks off Garrard Boulevard, where the oil is transferred to trucks.
Kinder Morgan Material Services LLC and Kinder Morgan Energy Partners LP were co-defendants.
The Feb. 3 permit amended a July 2013 permit that allowed Kinder Morgan to operate a denatured ethanol and crude oil bulk terminal. Ethanol is a volatile liquid derived from grain that is used as fuel or as a fuel additive, among other uses. The Feb. 3 amendments included modified testing procedures and standards for trucks. But the judge applied the 180-day statute of limitations to when the July 2013 permit was issued.
Both permits were issued ministerially and without environmental review.
Kinder Morgan has declined to say where the trucks are headed, citing confidentiality, but they are widely believed to be bound for the Tesoro Golden Eagle refinery in Martinez. Tesoro was an intervenor in the lawsuit, which had sought a preliminary injunction against further crude oil operations at Kinder Morgan and suspension of the air district permit pending a full review under the California Environmental Quality Act.
Earlier this year, a Tesoro spokeswoman confirmed the Martinez facility receives between 5,000 and 10,000 barrels per day of Bakken crude, a light, flammable variety named after oil fields in North Dakota and adjacent areas. That amount is equivalent to about two to four trains per month, the spokeswoman said, and is received through a “third-party facility” that she did not identify.
Air district counsel Brian Bunger hailed Friday’s decision as “a correct application of the law.”
“We’re pleased with the outcome,” Bunger said.
Air district spokeswoman Lisa Fasano said late Friday that “The Air District will continue to work with state legislators and policy makers regarding where and how crude oil is transported into the region for refining.”
But Earthjustice blasted the dismissal, saying it allows Kinder Morgan and the air district to “get away with opening (Richmond) to crude oil transport by rail without public notice.”
“This is just how the agencies and industry wins — hide the information, make the change under the cover of night, and hope people don’t notice while the clock winds down on any hope to stop these dangerous and callous developments,” Earthjustice attorney Suma Peesapati said in a news release. “What’s worse is this emboldens other companies to do the same thing and hide their switch to crude oil.”
Kinder Morgan spokesman Richard Wheatley said his company is “satisfied with the outcome.”
“It was a well-reasoned and thoughtful decision by the judge,” Wheatley said in an email Friday. “We look forward to continuing to serve our customers safely and reliably.”
Tesoro did not immediately respond to a request for comment.
Responding by email Friday, Contra Costa County Supervisor John Gioia, who sits on the air district board, said: “Despite this case’s dismissal, I remain concerned about the safety of transporting Bakken Crude and believe it’s important for the Federal Government to strengthen safety standards.”
Environmentalists jeer as Calif. judge throws out lawsuit against oil company’s rail facility
By Rory Carroll and Jennifer Chaussee, Reuters, September 5, 2014
SAN FRANCISCO (Reuters) – A San Francisco Superior Court judge on Friday dismissed a lawsuit brought by environmental groups against Kinder Morgan’s Richmond, California, rail terminal, which quietly began unloading crude oil from trains this year, saying the plaintiffs waited too long to file their complaint.
The groups argued that since the company was given permission from regulators to begin accepting the deliveries without public notice, they were not immediately aware of the change.
Judge Peter Busch acknowledged there were “deep concerns” about the new cargo, which passes through the densely populated city of Richmond, but said the plaintiffs missed the 180-day window to request that the permit be revoked.
Suma Peesapati, an attorney for the environmental groups that brought the suit, said the company and regulators knowingly deceived the public.
“This is just how the agencies and industry win – hide the information, make the change under the cover of night, and hope people don’t notice while the clock winds down on any hope to stop these dangerous and callous developments,” she said.
Kinder Morgan and the regulator, the Bay Area Air Quality Management District, said they followed the law as written and denied doing anything in secret. California law does not require public notification or an environmental review for the permit, which was issued in February.
Friday’s ruling was met with hisses from environmentalists who attended the hearing, some of whom participated in a protest the previous day where they chained themselves to a fence at the facility.
The Kinder Morgan terminal is the most substantial oil-by-rail facility in the state, handling up to 72,000 barrels per day. The crude is unloaded from incoming trains and placed on trucks bound for a Tesoro-owned refinery in Martinez.
The number of trains ferrying crude oil by rail to California from Canada and North Dakota’s Bakken shale formation has jumped dramatically in recent years, prompting safety and environmental concerns.
In July 2013, a train carrying crude oil derailed and exploded in a town in the Canadian province of Quebec, killing 47 people.
(Reporting by Rory Carroll and Jennifer Chaussee; Editing by Lisa Shumaker and Ken Wills)