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Wall Street Journal: Big Oil Feels the Need to Get Smaller

Repost from The Wall Street Journal

Big Oil Feels the Need to Get Smaller

Exxon, Shell, Chevron Pare Back as Rising Production Costs Squeeze Earnings
By Daniel Gilbert and Justin Scheck, Nov. 2, 2014
Shell_Ft.McMurrayAlberta_Bbrg500
Extracting oil from Western Canada’s oil sands, such as at this Shell facility near Fort McMurray, Alberta, is a particularly expensive proposition. Bloomberg News

As crude prices tumble, big oil companies are confronting what once would have been heresy: They need to shrink.

Even before U.S. oil prices began their summer drop toward $80 a barrel, the three biggest Western oil companies had lower profit margins than a decade ago, when they sold oil and gas for half the price, according to a Wall Street Journal analysis.

Despite collectively earning $18.9 billion in the third quarter, the three companies— Exxon Mobil Corp. , Royal Dutch Shell PLC and Chevron Corp. —are now shelving expansion plans and shedding operations with particularly tight profit margins.

The reason for the shift lies in the rising cost of extracting oil and gas. Exxon, Chevron, Shell, as well as BP PLC, each make less money tapping fuels than they did 10 years ago. Combined, the four companies averaged a 26% profit margin on their oil and gas sales in the past 12 months, compared with 35% a decade ago, according to the analysis.

Shell last week reported that its oil-and-gas production was lower than it was a decade ago and warned it is likely to keep falling for the next two years. Exxon’s output sank to a five-year low after the company disposed of less-profitable barrels in the Middle East. U.S.-based Chevron, for which production has been flat for the past year, is delaying major investments because of cost concerns.

BP has pared back the most sharply, selling $40 billion in assets since 2010, largely to pay for legal and cleanup costs stemming from the Deepwater Horizon oil spill in the Gulf of Mexico that year.

SqueezePlaysWSJ.500

To be sure, the companies, at least eventually, aim to pump more oil and gas. Exxon and Chevron last week reaffirmed plans to boost output by 2017.

“If we went back a decade ago, the thought of curtailing spending because crude was $80 a barrel would blow people’s minds,” said Dan Pickering, co-president of investment bank Tudor, Pickering, Holt & Co. “The inherent profitability of the business has come down.”

It isn’t only major oil companies that are pulling back. Oil companies world-wide have canceled or delayed more than $200 billion in projects since the start of last year, according to an estimate by research firm Sanford C. Bernstein.

In the past, the priority for big oil companies was to find and develop new oil and gas fields as fast as possible, partly to replace exhausted reserves and partly to show investors that the companies still could grow.

But the companies’ sheer size has meant that only huge, complex—and expensive—projects are big enough to make a difference to the companies’ reserves and revenues.

As a result, Exxon, Shell and Chevron have chased large energy deposits from the oil sands of Western Canada to the frigid Central Asian steppes. They also are drilling to greater depths in the Gulf of Mexico and building plants to liquefy natural gas on a remote Australian island. The three companies shelled out a combined $500 billion between 2009 and last year. They also spend three times more per barrel than smaller rivals that focus on U.S. shale, which is easier to extract.

The production from some of the largest endeavors has yet to materialize. While investment on projects to tap oil and gas rose by 80% from 2007 to 2013 for the six biggest oil companies, according to JBC Energy Markets, their collective oil and gas output fell 6.5%.

Several major ventures are scheduled to begin operations within a year, however, which some analysts have said could improve cash flow and earnings.

For decades, the oil industry relied on what Shell Chief Financial Officer Simon Henry calls its “colonial past” to gain access to low-cost, high-volume oil reserves in places such as the Middle East. In the 1970s, though, governments began driving harder bargains with companies.

Oil companies still kept trying to produce more oil, however. In the late 1990s, “it would have been unacceptable to say the production will go down,” Mr. Henry said.

Oil companies were trying to appease investors by promising to boost production and cut investment.

“We promised everything,” Mr. Henry said. Now, “those chickens did come home to roost.”

Shell has “about a third of our balance sheet in these assets making a return of 0%,” Shell Chief Executive Ben van Beurden said in a recent interview. Shell projects should have a profit margin of at least 10%, he said. “If that means a significantly smaller business, then I’m prepared to do that.”

Shell late last year canceled a $20 billion project to convert natural gas to diesel in Louisiana and this year halted a Saudi gas project where the company had spent millions of dollars.

The Anglo-Dutch company also has dialed back on shale drilling in the U.S. and Canada and abandoned its production targets.

U.S.-based Exxon earlier this year allowed a license to expire in Abu Dhabi, where the company had pumped oil for 75 years, and sold a stake in an oil field in southern Iraq because they didn’t offer sufficiently high returns.

Exxon is investing “not for the sake of growing volume but for the sake of capturing value,” Jeff Woodbury, the head of investor relations, said Friday.

Even Chevron, which said it planned to increase output by 2017, has lowered its projections. The company has postponed plans to develop a large gas field in the U.K. to help bring down costs. The company also recently delayed an offshore drilling project in Indonesia.

The re-evaluation has also come because the companies have been spending more than the cash they bring in. In nine of the past 10 quarters, Exxon, for example, has spent more on dividends, share buybacks and capital and exploration costs than it has generated from operations and by selling assets.

Though refining operations have cushioned the blow of lower oil prices, the companies indicated that they might take on more debt if crude gets even cheaper. U.S. crude closed Friday at $80.54 a barrel.

Chevron finance chief Patricia Yarrington said the company planned to move forward with its marquee projects and is willing to draw on its $14.2 billion in cash to pay dividends and repurchase shares.

“We are not bothered in a temporary sense,” she said. “We obviously can’t do that for a long period of time.”

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    Wall Street Journal: Dangers Aside, Railways Reshape Crude Market

    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
    Railroad tank cars are filled with oil at the Musket Corp. Windsor Crude Terminal in Windsor, Colo. | Bloomberg

    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.

    Pipelines still carry most of the 8.5 million barrels of oil pumped every day in the U.S. And safety experts say pipelines have the best record of transporting crude without accident, despite a few big leaks like the one that left Mayflower, Ark., awash in heavy crude last year.

    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., the 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.

    By the end of 2013, there were 13 large rail loading facilities in the state, according to the North Dakota Pipeline Authority. The largest, the Bakken Oil Express outside Dickinson, N.D., can handle 200,000 barrels a day.

    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.
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      Benicia Herald Op Ed: My Dream for Benicia, by Sue Kibbe

      Repost from The Benicia Herald
      [Editor: Sue Kibbe also submitted her “Dream for Benicia” to the Benicia Planning Commission as a comment for the record on Valero Crude By Rail.  – RS]

      My dream for Benicia

      I HAVE A DREAM THAT ONE DAY BENICIA WILL RISE UP and be known across the nation as the Little City that said “No” to Big Oil, putting human life and environmental stewardship above human greed and the insatiable quest for increased profits. What a proud day it would be if Benicia said the risk to the thousands living up-rail is too high a price to pay.

      Because it is too high a price to pay. The effect on the environment from a spill or explosion would be an unmitigated disaster, a fire that cannot be extinguished, a toxic slick destroying every living thing.

      Crude-by-rail has been called “a disaster in the making” by more than one expert. A railway safety consultant has warned, “We’ve got all kinds of failings on all sides, inadequacies that are coming to light because trains are blowing up all over the place.” The Federal Railroad Administration is able to inspect only two-tenths of 1 percent of railroad operations each year. With 140,000 rail miles across the nation, regular inspection of the tracks is impossible.

      The Department of Transportation has yet to provide regulations for crude-by-rail transport. Expect pushback from the rail industry. Safety measures such as “positive train control” (PTC) were recommended 45 years ago, yet the technology operates on only a tiny slice of America’s rail network. The railroads have preempted local control and can make routing decisions without public disclosure.

      Meanwhile, aging rail trestles and lines such as the one through Feather River Canyon — lines that were never constructed for such heavy traffic — continue to be used with greater frequency. The New York Times reported last month that “400,000 carloads of crude oil traveled by rail last year . . . up from 9,500 in 2008. . . . From 1975 to 2012, federal records show, (railroads) spilled 800,000 gallons of crude oil. Last year alone, they spilled more the 1.15 million gallons.”

      Scott Smith, a scientist whose work has focused on oil spills, has studied samples of the Bakken crude oil from three accident sites. He may be the only expert outside the oil industry to have analyzed this crude. All the samples he studied share the same high levels of volatile organic compounds (VOC) and alkane gases in exceptional combinations. Smith says 30 percent to 40 percent of Bakken crude is made up of toxic and explosive gases. “Any form of static electricity will ignite this stuff and blow it up,” he said.

      The Wall Street Journal, based on its own analysis, reported that Bakken has significantly more combustible gases and a higher vapor pressure than oil from other formations. Basically, its flash point is dangerously low, and a chain reaction from tank car to tank car is inevitable.

      Examining the draft environmental impact report (DEIR)

      Pay attention to the wording in Valero’s proposal: “The Project would not increase the amount of crude oil that can be processed at the refinery . . .” It never says the amount of crude oil that “is being processed” at the refinery. In the DEIR, page 3-2, it says: “The Refinery’s crude oil processing rate is limited to an annual average of 165,000 barrels per day (daily maximum of 180,000 barrels) by its operating permit.” That is a huge increase from the 70,000 barrels per day that it says are processed now. With the 70,000 by rail per day, add 18 vessels shipping 350,000 barrels per vessel — that equals 6,300,000 barrels, a total of 31,850,000 barrels per year — thus an increase in processing, and hence in emissions.

      We have read in a Bay Area newspaper that “Valero was named by the U.S. Environmental Protection Agency this year as one of California’s top distributors of dangerous substances. It was second to the ConocoPhillips refinery in Rodeo as the most profligate disseminator of poisons in the Bay Area, releasing 504,472 pounds of toxic substances into the air, water or ground. It was the 10th biggest source of chemicals and pollutants in the state, according to (a) report released in January.

      “Almost half of the violations cited by the (Bay Area Air Quality Management District) between 2011 and 2012 involved excessive short-term emissions and valve leaks on tanks.”

      According to the DEIR, Section 4.1-23: An unmitigated, significant and unavoidable air quality violation, with a net increase in Nitrogen oxides and ozone precursor emissions would result from transporting crude by rail through the communities up-rail within the Sacramento Basin: in the Yolo-Solano, Sacramento Metropolitan and Placer County Air Quality Management Districts.

      How can we, in good conscience — or even legally — violate the air quality of our neighbors to the north by authorizing these shipments? And not only would we affect their air quality, we also would authorize the transport of a highly toxic, corrosive, flammable material in 36, 500 tank cars, each weighing 143 tons when loaded with crude oil — an annual total of 1,460 locomotives weighing more than 7,150 tons when loaded — through these communities, over rails that were never built for and have never carried such heavy traffic, all for the sole purpose of satisfying human greed?

      Valero’s net income rose 28 percent in the first quarter of 2014; net income to shareholders jumped to $828 million, while revenues rose to $33.6 billion. If you are telling me that Valero needs this project to stay competitive, you haven’t looked at the facts.

      A closer look at ‘job creation,’ one of the claimed benefits to the community from crude-by-rail

      The addition of 20 full-time jobs at the refinery will be the result of switching from crude by vessel to rail delivery. There will be 72 fewer vessel deliveries, in which crude is pumped directly from a ship at the dock into pipes and storage tanks in one operation. Instead, there will be 36,500 tank cars per year to be emptied at the refinery, coupling and uncoupling 100 tank cars per day.

      Let’s be clear, these are HAZMAT jobs. Not only would you be unloading one of the most toxic substances on the planet, breathing in toxic “fugitive emissions” from the tank cars, you also would be in direct contact with the toxic emissions from 730 locomotives per year. The only thing appealing about these new jobs will be the “good pay” (they are never described as “good jobs”), because they are hazardous, arduous, truly nasty jobs.

      Section 4.6.5 Impacts and Mitigation Measures: Greenhouse Gas Emissions

      Another one of the project’s “benefits” much proclaimed by Valero is the reduction of greenhouse gas emissions. Valero states that crude by rail would “improve air quality in the Bay Area.” They are not lying — this is a carefully worded deception. The Bay Area Air Quality Management District is a huge area encompassing every county that touches the Bay, the entirety of every county except for Sonoma and Solano counties. This is the area in which they can legally claim to improve air quality.

      The mitigating factor here is the reduced number of oil tankers traversing the Bay. What they calculated were the emissions from 72 ships that will no longer be sailing across 49.5 miles — from the sea buoy outside the Golden Gate to the Valero dock in Benicia and back out again. (That’s 99 miles total for each of the 72 tankers.) They were allowed to subtract those Bay Area emissions from the direct emissions that will be generated right here from construction of the rail terminal, the unloading of crude oil and the 730 locomotive engines moving through the Industrial Park.

      This, then, gives Valero a “less than significant” increase in emissions (DEIR Table 4.1-5) — but in reality, while reducing emissions out in the Bay they will be increasing them right here where we live and breathe by 18,433 metric tons per year (DEIR Table 4.6-5). This may be legal in terms of the permitting process, and good news for sailboats on the Bay, but for the people of Benicia and especially for any businesses located in the Industrial Park, it is a terrible deal.

      What people need to understand is that this “mitigation” in the “Bay Area” has been used to offset the very real pollution that will happen right here in our city. That pollution is not reduced by one particle, except on paper. To tell us that this is a “benefit” to Benicia is hugely hypocritical and a manipulation of the facts. Do not be deceived. Know that the pollution in this city will increase as a result of crude by rail, and the “mitigation” out in the Bay actually works against us. And if you have a business in the Industrial Park, you will be in the thick of it.

      Further emissions and omissions

      The DEIR, page 4.1-21, states: “. . . locomotives generate more emissions than marine vessels per mile, per 1,000,000 barrels of crude oil delivered each year, of ROG (reactive organic gas), NOx, (nitrogen oxide), CO (carbon monoxide), PM10 and PM25 (particulate matter of differing micron size).” Estimates are vague regarding all this pollution. We are supposed to take comfort, however, in the decrease in marine emissions from fewer oil tankers traveling from Alaska, South America and the Middle East, which according to this document is supposed to offset all but the lethal NOx from the trains. It’s fancy figuring, subtracting what is happening on the ocean blue from the reality of emissions from 1,460 locomotives, each traveling more than 1,500 miles, that would be added to the terrestrial U.S., directly to hundreds of communities, farms and forests along the railways. The impact would, in fact, be “significant and unavoidable.”

      But all this is avoidable — if Benicia declares a moratorium on crude by rail.

      I have a dream today . . . that could all too easily become tomorrow’s nightmare.

      Sue Kibbe is a longtime resident of Benicia’s Highlands district.

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        Modesto Bee editorial: Tell us when dangerous oil cars are rolling

        Repost from The Modesto Bee

        Our View: Tell us when dangerous oil cars are rolling

        August 9, 2014

        Tank cars suitable for carrying Bakken crude oil sit on the BNSF railroad tracks that run through Escalon in May. The cars were empty, but left unattended for several days at a time. MIKE DUNBAR — mdunbar@modbee.com

        Anyone who bothered to examine the 40 black, cylindrical railway tankers parked within 60 feet of a neighborhood in Escalon would have noticed a couple of markings. First was the red diamond-shaped placard with a flame on it; the other was the designation “DOT 111” in a grid stenciled on the tank.Those markings are what you find on tank cars used to carry the most dangerous liquids across America – including the volatile crude oil extracted from Bakken shale deposits in North Dakota.

        A BNSF official said those unattended tank cars left on one of the double tracks in Escalon for a total of seven days over several weekends from April to June were empty. Unfortunately, no one in the community of 7,000 knew enough about them to bother to ask what was in them.

        “I’m not aware of what was in those cars,” said Escalon Fire Chief Rick Mello, who commands a staff of nine full-time firefighters and a volunteer force of 16. Up to 50 trains go through Escalon each day, and BNSF never notifies Escalon about what is moving along its tracks – unless asked.

        That must change, because it’s entirely likely we’ll see far more of those cars in the future. And they won’t always be empty.

        California’s Office of Emergency Services estimates shipments of Bakken crude will increase 25-fold by 2016 as 150 million barrels move to California’s refineries in the Bay Area, Southern California and eventually Bakersfield. Since all Bakken crude moves by rail, that could mean another 225,000 tank cars a year moving through Roseville, Sacramento, Modesto, Merced and beyond. Mother Jones magazine calls it a “virtual pipeline.”

        The Wall Street Journal reported Bakken crude contains higher amounts of butane, ethane and propane than other crudes, making it too volatile for most actual pipelines. Those gases have contributed to the deaths of 47 people in the town of Lac-Megantic in Canada, where a train carrying Bakken crude derailed in July 2013 and exploded. Less dramatic derailments, some with fires, have occurred in North Dakota, Virginia and Illinois. The U.S. Department of Transportation reports 108 crude spills last year.

        “When you look at the lines of travel from Canada and North Dakota, you figure if they’re headed for the Bay Area or to Bakersfield, the odds are that you’re going to see shipments going down the Valley,” said Assemblyman Roger Dickinson, who represents north Sacramento. That’s why he authored Assembly Bill 380, which would require the railroads to notify area first-responders whenever these trains are passing through.

        But the nation’s railroads are largely impervious to local concerns; they’re governed by the U.S. Department of Transportation and they’re powerful.

        In July, the DOT issued proposed new rules for safe transport, including increased cargo sampling, better route analysis, a 40 mph speed limit on trains labeled “high-hazard flammable,” and switching to the new, safer DOT 111 cars after Oct. 1, 2015. The new cars have double steel walls, better closures and heavier carriages. Currently, they make up about a third of the nation’s tanker fleet.

        California’s Office of Emergency Services has issued 12 recommendations, ranging from allowing better data collection to phasing out those old tank cars to better training for first-responders.

        Laudably, the railroads are already doing most of these things. Since the mid-1990s, BNSF has offered – at no charge – training for handling spilled hazardous materials and dealing with emergencies. One of Escalon’s eight full-time firefighters was trained at virtually no cost to the city. BNSF said they would even do on-site training for departments. But not every fire department has taken the courses. A BNSF spokeswoman said Sacramento sent only one firefighter to the most recent three-day training on dealing with hazardous materials, including Bakken crude.

        The federal DOT issued an emergency order in May to require all carriers to inform first responders about crude oil being shipped through their towns and for the immediate development of plans to handle oil spills. Unfortunately, it contains a discomforting criteria: the order applies only to trains carrying 1 million gallons of Bakken crude, or roughly 35 tank cars. And to reach DOT’s definition of a “high-hazard flammable train,” a train must have 20 tank cars.

        But a Bakken explosion in Virginia blew one tank car an estimated 5,500 feet; a photograph of another explosion showed a fireball rising 700 feet from a single car. Our first responders ought to know when even one car carrying such material is coming through.

        Dickinson’s bill would make notification available on a real-time basis, without having to ask. His goal, said Dickinson, is to “give first responders better information on how to respond. The techniques and materials used in dealing with different chemicals, or even different types of oil, vary widely. ‘I know I’m dealing with oil, but what kind of oil?’ My bill is aimed at getting better, more timely, more complete information to responding agencies.”

        But his bill mirrors federal orders on the size of the train; our first responders need to know when any hazardous shipment is moving through.

        The incredible expansion of America’s oil resources is creating many positives – from more jobs to less dependence on foreign oil. But it’s happening so fast that we’re devising the safety aspects as we roll along this virtual pipeline from North Dakota to California in the west and to New Jersey in the east. Accidents are happening along the way. Federal rules don’t go nearly far enough to protect public safety in this new world. Dickinson’s bill and the state OES recommendations would help, but we need a broader dialogue. As Dickinson said, “we know we’re going to have derailments, no matter how careful people try to be.”

        That’s why first-responders such as Escalon’s Chief Mello must “prepare for anything, any day.” Knowing what’s coming gives us a head start.

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