Repost from Forbes [Editor: Significant quote: “And the returning empty trains are not quite empty. They have enough oil remaining in them to produce highly volatile vapors that make them even more prone to explosions than the full cars.” – RS]
Senators Try To Stop The Coming Oil Train Wreck
By James Conca, 4/06/2015 @ 7:45AM
Spearheaded by the Senators from Washington State, legislation just introduced in the United States Senate will finally address the rash of crude oil train wrecks and explosions that have skyrocketed over the last two years in parallel with the steep rise in the amount of crude oil transported by rail (Tri-City Herald).
Oil production is at an all-time high in America, great for our economy and energy independence, but bad for the people and places that lie along the shipping routes.
Just since February, there have been four fiery derailments of crude oil trains in North America (dot111) and many more simple spills.
More shale crude oil is being shipped by rail than ever before – every minute, shipments of more than two million gallons of crude are traveling distances of over a thousand miles in unit trains of more than a hundred tank cars (PHMSA.gov).
U.S. railroads delivered 7 million barrels of crude in 2008, 46 million in 2011, 163 million in 2012, and 262 million in 2013, almost as much as that anticipated by the Keystone XL Pipeline alone.
Amid a North American energy boom, our pipelines are at capacity and crude oil shipping on rail is dramatically increasing. The trains are getting bigger and towing more and more tanker cars. From 1975 to 2012, trains were short and spills were rare and small, with about half of those years having no spills above a few gallons (EarthJustice.org).
Then came 2013, in which more crude oil was spilled in U.S. rail incidents than was spilled in the previous thirty-seven years. The North Dakota shale oil boom has averaged over a million barrels per day and two-thirds of that is being shipped by rail (North Dakota Pipeline Authority).
Crude is a nasty material, very destructive when it spills into the environment, and very toxic when it contacts humans or animals. It’s not even useful for energy, or anything else, until it’s chemically processed, or refined, into suitable products like naphtha, gasoline, heating oil, kerosene, asphaltics, mineral spirits, natural gas liquids, and a host of others.
But every crude oil has different properties, such as sulfur content (sweet to sour) or density (light to heavy), and requires a specific chemical processing facility to handle it (Permian Basin Oil&Gas). Different crudes produce different amounts and types of products, sometimes leading to a glut in one or more of them, like too much natural gas liquids that drops their price dramatically, or not enough heating oil that raises its price.
Thus, the push for more rail transport and pipelines to get it to the refineries along the Gulf Coast than can handle it.
Ensuring that these crude shipments are safe is the responsibility of the United States Department of Transportation, specifically the Pipeline and Hazardous Materials Safety Administration (PHMSA) and Federal Railroad Administration (FRA).
Unfortunately, the shipments aren’t really that safe. We don’t have the correct train cars to carry this unusual freight. The United States now has 37,000 tank cars with thin-walls that puncture easily after which the vapors can cause massive explosions.
And the returning empty trains are not quite empty. They have enough oil remaining in them to produce highly volatile vapors that make them even more prone to explosions than the full cars.
A clear example of this danger came on July 6, 2013, when a train carrying 72 tank cars, and over 2,000,000 gallons of Bakken oil shale crude from the Williston Basin of North Dakota, derailed in the small town of Lac-Megantic, Quebec. Much of the town was destroyed and forty-seven people were killed.
This disaster brought the problem of rail transport of crude oil to the forefront of the news and of the State and Federal legislative bodies, and brought calls for safety reforms in the rail industry.
PHMSA undertook a series of unannounced inspections, testing, and analysis of the crude being transported (PHMSA.gov). While PHMSA found that Bakken crude is correctly classified chemically under transportation guidelines, the crude does have a higher gas content, higher vapor pressure, lower flash point and lower boiling point, so it has a higher degree of volatility than most other crudes in the United States. These properties cause increased ignitability and flammability.
PHMSA now requires extensive testing of crude for shipping, but the real problem remains – most of our tank cars are not safe to transport this stuff at all and should be taken out of service.
It’s no coincidence that the first two Senators listed are from Washington State. Trains hauling this type of flammable crude pass through our state every day, right through population centers totaling over a million people (Cantwell.Senate).And the number of oil trains will double next year.
This is strange for WA State because it’s the least carbon emitting state in the union and has already satisfied any and all carbon goals one could reasonably think up for any other state. And the state is poised to go even further. So increased oil and coal shipments across its length has the people of Washington State a bit concerned.
The rail standards set by the proposed legislation would require thermal protection, full-height head shields, shells more than half an inch thick, pressure relief valves and electronically controlled pneumatic brakes.
The Senators’ legislation would also authorize $40 million for training programs and grants to communities to update emergency response and notification plans.
According to Cantwell, “Firefighters responding to derailments have said they could do little more than stand a half-mile back and let the fires burn” (Tri-City Herald).
Rail carriers would be required to develop comprehensive emergency response plans for large accidents involving fire or explosions, provide information on shipments to state and local officials along routes — including what is shipped and its level of volatility — and to work with federal and local officials on their response plans.
“We want to make sure that we are doing everything we can to protect our communities and give first responders the tools they need,” Cantwell said.
It’s certainly time for some decent regulations on this increasing risk.
Repost from ABC News [Editor: Significant quote: “…even with oil prices falling off a cliff, industry analysts and railroad executives point out that crude shipments still make up just a sliver of the overall freight delivered by rail. What’s more, because fuel is such a huge cost in the industry, railroads are a direct beneficiary of those falling prices.” – RS]
Low Oil Prices Unlikely to Hurt Railroads Much
By Josh Funk, AP Business News, Jan 5, 2015
The stunning collapse in oil prices over the past several months won’t derail the railroads’ profit engine even if it does slow the tremendous growth in crude shipments seen in recent years.
Carloads of crude oil spiked well over 4000 percent between 2008 and last year — from 9,500 carloads to 435,560 — as production boomed and the cost for a barrel of oil soared into the triple digits.
Those prices have tumbled severely, to just above $50 per barrel Friday, and that has rattled some of the investors who have plowed money into companies like Union Pacific, Norfolk Southern and CSX.
All three of those companies have seen their stock prices slip over the past month, along with major U.S. stock markets.
But even with oil prices falling off a cliff, industry analysts and railroad executives point out that crude shipments still make up just a sliver of the overall freight delivered by rail. What’s more, because fuel is such a huge cost in the industry, railroads are a direct beneficiary of those falling prices.
Crude oil shipments remain less than 2 percent of all the carloads major U.S. railroads deliver. Sub-$60 oil might force producers to rein in spending but railroads ? which spend hundreds of million of dollars every quarter on fuel? will see their costs fall away.
Those falling energy prices have also proven to be the equivalent of a massive tax cut for both consumers and businesses, and railroads stand to benefit from that as well.
Fueled by a rebounding employment as well as rising consumer and business confidence, U.S. economic growth reached a sizzling 5 percent annual rate last quarter, the government reported this month. The rebounding economy is likely to drive even greater demand for shipping.
Edward Jones analyst Logan Purk says the importance of crude oil shipments by rail seems to have been inflated by investors.
“It seems like whatever loss in business they see will be offset by the drop in fuel costs,” Purk said.
The crude oil business has provided a nice boost for railroads at a time when coal shipments were declining. Profits at the major U.S. railroads have been improving steadily along with the economy, reaching $13.4 billion in 2013, up from $11.9 billion in 2012 and $10.9 billion in 2011.
Officials from Union Pacific Corp, Norfolk Southern Corp., CSX Corp. and Canadian Pacific all tried to reassure investors about crude oil shipments during their latest investment conferences.
“I don’t think that we are going to see any knee-jerk reaction. I don’t think we are going to see anything stopped in the Bakken,” said Canadian Pacific CEO Hunter Harrison said of the massive oil and gas fields that stretch from North Dakota and Montana into Canada.
The Bakken region is one of the places where railroads are hauling the majority of the oil because pipeline capacity hasn’t been able to keep up with production.
Through the fall, North Dakota oil drillers remained on pace to set a sixth consecutive annual record for crude oil production.
Justin Kringstad, director of the North Dakota Pipeline Authority, said the lower prices will prompt oil companies to look for ways to reduce costs, but he’s not yet sure how much of an effect it will have on production in the region.
“It’s still a little early to make any firm assessments,” Kringstad said.
Repost from The Wall Street Journal [Editor: A good summary of recent history and market players in the emergence and future of crude by rail. Interesting quote: “…if all the railcars loaded with crude on one day were hitched to a single locomotive, the resulting train would be about 29 miles long.” – RS]
Dangers Aside, Railways Reshape Crude Market
Shipping Crude by Rail Expands as New Pipelines Hit Headwinds and Train Companies Reap Revenue
By Russell Gold and Chester Dawson, Sept. 21, 2014
In May 2008, a locomotive with a grizzly bear painted on its side pulled into a railroad siding next to an abandoned grain elevator in the ghost town of Dore, N.D. The engine, property of the Yellowstone Valley Railroad, hitched up a couple of tank cars of crude from nearby oil wells and set off on a thousand-mile journey to Oklahoma.
Dore would never be the same—and neither would the U.S. energy industry. Until then, most oil pumped in North America moved around the continent in pipelines. Suddenly, and just as the oil industry began a period of unprecedented growth, there was an alternative: “crude by rail.”
Today, 1.6 million barrels of oil a day are riding the rails, close to 20% of the total pumped in the U.S., according to the Energy Information Administration, chugging across plains and over bridges, rumbling through cities and towns on their way to refineries on the coasts and along the Gulf of Mexico. If all the railcars loaded with crude on one day were hitched to a single locomotive, the resulting train would be about 29 miles long.
Initially conceived of as a stopgap measure until pipelines could be constructed, and plagued by high-profile safety problems, crude by rail has nevertheless become a permanent part of the nation’s energy infrastructure, experts say. Even pipeline companies have jumped into the rail business, building terminals to load and unload crude.
Behind the new industry are powerful economics. While it costs a bit more to ship petroleum on trains than through pipelines, railroads have the flexibility to deliver it to wherever it will fetch the highest prices. And capital expenses are far lower. Major railroads’ revenue for hauling crude has jumped from $25.8 million in 2008 to $2.15 billion in 2013, according to federal data.
The oil and rail industries have developed “a mutual dependence likely to continue for a long time,” said Ed Morse, global head of commodities research for Citigroup.
It is a similar story in Canada: the amount of crude moving by rail has quadrupled since 2012, and is forecast to more than triple between now and 2016.
The swift growth of crude by rail has been embraced by drillers in new oil fields in North Dakota, Texas and Colorado eager to move their product to the highest bidders. It was also welcomed, at least initially, by railroads looking for new customers after the recession sent traditional shipments tumbling.
But it has frightened communities across the country where first responders fear the fireballs that have erupted in the past year after some oil-train derailments. Federal regulators recently proposed new rules to require sturdier cars to carry oil, lower speed limits on some shipments and testing of the volatility of the crude transported by train.
But pipelines, especially new pipelines, face a lot of problems these days. They draw protests from communities worried about spills and unhappy with the use of eminent domain to take rights of way from local landowners.
Activists opposed to the use of fossil fuels have focused on blocking pipelines in hopes of keeping oil in the ground. The Keystone XL pipeline, which requires federal approval because it crosses the U.S. border from Canada, has been seeking a permit since 2008 amid fierce political fighting, pro and con.
Railroads, by contrast, already own 140,000 miles of track in the U.S., according federal statistics, in a system that can send cargo from coast to coast, north to Canada and south to Mexico. By law, railroads don’t have the ability to turn down cargo, even if they want to, so all oil shippers had to do is to figure out how to get oil on and off the trains.
A big loading terminal might cost about $50 million—equal to the estimated cost of building just one mile of the Keystone pipeline.
With a terminal, “You can build it and have it under contract in 12 months and pay it off in five years,” said Steve Kean, president and chief operating officer of Kinder Morgan Inc., thtte operator of 80,000 miles of pipeline in North America and a growing network of rail terminals. The company has spent $290 million to date building up a crude-by-rail business.
To justify the massive investments needed for pipelines, their builders usually require drillers and refiners to sign long-term shipping contracts before they start laying pipe. That has been a problem for new oil fields without a track record, and for the mostly independent energy companies that developed those fields using hydraulic fracturing, said Adam Sieminski, who runs the federal government’s Energy Information Administration. Railroads don’t require such lengthy contracts.
The new way of moving crude was born out of frustration and need. In 2006, North Dakota faced what it called, in a report, a “crude oil transportation crisis.” Oil production was rising, but the few pipelines that served the state were full.
Enter Musket Corp., a privately held Houston company owned by the family that also owns Love’s Travel Stops & Country Stores. Musket bought inexpensive diesel from refineries along the Gulf Coast and moved it by rail to locations close to the Love’s service stations, developing and patenting a portable pump for loading and unloading the fuel.
In 2007, Musket tried using its pump to load a couple of tank cars with crude oil rather than diesel. When that worked, the company sent employees driving around North Dakota with binoculars to find an unused railroad siding to lease. They spotted Dore.
“Pretty soon, we knew it was going to be big,” said J.P. Fjeld-Hansen, a managing director of Musket. Trains could deliver Bakken crude to wherever it could fetch the highest prices, including Philadelphia, California, Louisiana or the giant Houston petrochemical complex.
The first loads from Dore were carried to Oklahoma, home to a giant oil-trading hub, by BNSF Railway Co., now owned by Berkshire Hathaway Inc. It picked up the cars from Yellowstone Valley Railroad, a so-called short line railroad that now operates on just one mile of track — specializing in hauling freight from shippers’ yards to connections with the bigger railroads. The company that owns the railroad, Watco Companies Inc., didn’t respond to requests for comment.
“Crude is a growing part of our business,” said Michael Treviño, a spokesman for BNSF, which now moves more oil than any other major North American railroad and spent $200 million last year on crude-by-rail projects.
The Dore project caught the attention of EOG Resources Inc., a big oil and gas company based in Houston. By the end of 2009, EOG had built an industrial-scale rail-loading terminal in Stanley, N.D., including a 1.3-mile loop of track where trains could be loaded with 60,000 barrels a day.
“We brought the project to fruition in an eight-month period,” Mark Papa, the former chairman of the company, said in a conference call with analysts in 2010. The company declined to comment.
The terminal cost $50 million, according to Wilson & Company Inc., an engineering firm involved in the project. Its chairman, Kenny Hancock, said his firm needed to work out kinks with this first-of-its-kind facility.
One problem was that when tank cars were loaded, hydrocarbon fumes would leak out and, since they were heavier than air, settle in the long open-ended loading shed. “The first seal we tried didn’t work and our explosive limit alarms went off,” he said. New seals and ventilation fans eventually solved the problem, the company said.
The relative ease and low cost of building loading and unloading terminals soon attracted a range of companies. Great Western Railroad, a Saskatchewan short line mostly owned by the province’s farmers in a cooperative agreement, hauled more carloads of crude last year than carloads of grain.
In 2011, Dakota Plains Holding Co. built a loading terminal, acquired a Utah tanning salon business that traded on the OTC Bulletin Board, renamed the business and issued shares to raise funds to expand.
There was also a surge in facilities for unloading oil and transferring it to refineries; such terminals are operating or planned in nearly two dozen states and Canadian provinces. Mile-long trains of oil tankers became familiar sights in cities across the country.
The crude-by-rail phenomenon has spread beyond the Bakken Shale in North Dakota and Montana to the Permian Basin in Texas, the Niobrara in Colorado and to western Canada. In July, Global Partners said they planned to build a rail terminal in the heart of the Gulf Coast petrochemical complex that can handle more than 100,000 barrels a day of crude, including Canadian oil sands.
“It is not a layup to build a pipeline to the Gulf Coast,” said Mark Romaine, chief operating officer of Global Partners, a Waltham, Mass., fuel logistics firm. “Look at the Keystone XL.”
But a year ago, those strings of black train cars took on an ominous look after an unattended oil train in Lac-Mégantic, Quebec, derailed and exploded, killing 47 people. Several other derailments were followed by fireballs as Bakken crude burst into towering flames.
Those accidents have given railroads second thoughts about hauling crude, said consultant Anthony Hatch. While companies don’t break out the data, hauling crude is believed to be very profitable for railroads, so “they were excited” at first, he said. But now that business, which makes up only about 3.5% of rail shipments, according to federal data, has attracted unwelcome attention in communities that previously ignored the freight trains rumbling through town. And even some of the largest North American railroads are concerned they might not survive the costs of cleanup and lawsuits if a train exploded in a crowded city.
Regulators are imposing new rules that industry executives fear could slow the entire rail system, cut capacity and cause congestion. Federal regulators recently concluded that Bakken oil contains a high level of combustible compounds, known as light ends, as The Wall Street Journal reported earlier this year. The U.S. Department of Transportation’s proposed new rules on crude by rail will require companies to test crude before putting it into appropriately sturdy tank cars, among other measures being imposed on the little-regulated industry.
Harold Hamm, chairman and chief executive of Continental Resources Inc., a leading exploration and production company in the Bakken, said that the problem isn’t with the oil, but with railroad safety. “There would not be any problems with oil movements in America as long as Mr. Buffett keeps the trains on the track,” said Mr. Hamm, referring to Warren Buffett, the chairman and chief executive of Berkshire Hathaway, the owner of BNSF.
Mr. Treviño, the BNSF spokesman, said that “the facts are that 99.997% of rail industry shipments of hazardous materials reach their destination without a release caused by a train accident,” and that BNSF had a lower percentage of derailments last year than anytime in company history.
Two BNSF trains were involved in a derailment near Casselton, N.D., in 2013 that released more than 400,000 gallons of crude and set off a several-story tall explosion, leading to the evacuation of 1,400 people from Casselton.
The Association of American Railroads said it has increased inspections, decreased speeds and is using more technology to prevent derailments.
But Mr. Hamm said he thinks the situation will be short lived. “Rail is still a temporary thing,” he said. “If rail hadn’t been available, there would have been pipelines built.”
And some are in the works. Enbridge Inc. recently received approval form North Dakota regulators to start construction on a $2.6 billion, 225,000-barrel a day and 600-mile project called the Sandpiper pipeline, which would move oil from Tioga, N.D., to Wisconsin.
In Dore, Musket says it isn’t worried about business drying up with the addition of pipelines. The company’s terminal in the town can now handle 60,000 barrels a day and employs 50 people; the company has built another rail-loading facility in Dickinson, a two-hour drive to the south, and one in the Niobrara Shale in Colorado.
“I don’t think it’s either/or,” Mr. Fjeld-Hansen said. “I think rail and pipe will coexist for a long time.”
—Betsy Morris and David George-Cosh contributed to this article.
Repost from USA Today [Editor: Nothing new here, but good that mainstream publications are taking notice. – RS]
Rail deliveries of U.S. oil continue to surge
Wendy Koch, August 28, 2014
Amid a boom in U.S. oil production, the amount of crude oil and refined petroleum products moved by rail continues to climb.
There were 459,550 carloads of oil and petroleum products transported during the first seven months of this year, up 9% from the same period in 2013, according to the Association of American Railroads.
More than half of these carloads carried oil, moving 759,000 barrels of crude per day and accounting for 8% of U.S. oil production.
The surge in oil trains began in mid-2011. At that time, weekly carloads of oil and petroleum products averaged about 7,000. In July, they reached nearly 16,000, according to the AAR.
The use of horizontal drilling and hydraulic fracturing or fracking has made it possible to extract huge amounts of oil from underground shale deposits. The Bakken Shale, mostly in North Dakota, accounts for much of the growth in U.S. oil production. One of every eight U.S.-produced barrels comes from North Dakota, now the second-largest oil producing state.
Between 60% and 70% of the state’s oil was moved by rail to refineries during the first half of 2014, according to the North Dakota Pipeline Authority.
The Department of Transportation proposal will require the phaseout, within two years, of tens of thousands of tank cars unless they are retrofitted to meet new safety standards. It will also require speed limits, better braking and testing of volatile liquids, including oil. It will require that cars constructed after October 2015 have thicker steel.
The DOT proposed rule, which will take months to finalize after a 60-day comment period, applies to shipments with at least 20 rail cars carrying flammable fuels, including ethanol.
In May, an oil-carrying freight train derailed in Lynchburg, Va., spilling 30,000 gallons of oil into the James River. Last year in Lac-Megantic, Quebec, an oil train exploded and killed 47 people.