MOUNT CARBON, W.Va. — There will be another CSX train carrying Bakkan oil going through eastern Kanawha and Fayette counties soon now that the track has been repaired following the Feb. 19 derailment of an oil train near Mount Carbon.
“It’s part of the freight that goes over that line,” CSX Spokesman Gary Sease told MetroNews Friday. “Those shipments, along with all the other freight we haul, have resumed.”
The rebuilt line, just a few miles from Montgomery, reopened Thursday afternoon following a week long cleanup. [CONTINUED]
WASHINGTON — Fiery wrecks of trains hauling crude oil have intensified pressure on the Obama administration to approve tougher standards for railroads and tank cars despite industry complaints that it could cost billions and slow freight deliveries.
On Feb. 5, the Transportation Department sent the White House draft rules that would require oil trains to use stronger tank cars and make other safety improvements.
Nine days later a 100-car train hauling crude oil and petroleum distillates derailed and caught fire in a remote part of Ontario, Canada. Less than 48 hours later, a 109-car oil train derailed and caught fire in West Virginia, leaking oil into a Kanawha River tributary and burning a house to its foundation. As the fire spread across 19 of the cars, a nearby resident said the explosions sounded like an “atomic bomb.” Both fires burned for nearly a week. [CONTINUED]
Exxon, Shell, Chevron Pare Back as Rising Production Costs Squeeze Earnings
By Daniel Gilbert and Justin Scheck, Nov. 2, 2014
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.
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.”
California officials challenge Benicia crude oil train plan
By Tony Bizjak, September 24, 2014
Brown administration officials say Benicia has underestimated the risk posed by oil trains planned to run through Sacramento and other parts of Northern California to the city’s Valero refinery, and is calling on the city to redo its safety analysis before allowing oil shipments to increase.
A letter sent to the city last week by the state’s Office of Spill Prevention and Response and the California Public Utilities Commission expresses concerns similar to those detailed in recent letters to Benicia from the Sacramento Area Council of Governments and the cities of Sacramento and Davis.
Sacramento regional leaders have accused Benicia of not adequately exploring the explosion and fire risks of a Valero Refining Co. plan to run two 50-car trains daily through downtown Roseville, Sacramento, West Sacramento, Davis and other cities to the Benicia refinery.
Julie Yamamoto, chief of the state spill prevention agency’s scientific branch and a member of the governor’s rail safety team, said state officials felt compelled to push for Benicia to do deeper study prior to project approval.
“We felt the risk analysis was sufficiently flawed and underestimates the risks,” Yamamoto said.
In its draft environmental impact report, issued earlier this summer, Benicia only analyzed oil spill possibilities on the rail line between Roseville and Benicia, even though the trains will travel from other states or even Canada. “That is a pretty big shortfall in not considering the rest of the track to the California border, and even beyond that,” Yamamoto said. State officials also have questions about how Benicia came up with the assertion that a derailed train might spill oil only once every 111 years, and therefore the risk was insignificant.
“The derailment rate looks to us to be low compared to national data,” Yamamoto said.
Benicia city officials declined to respond this week to the concerns raised by the state and local governments, but previously indicated that they limited their spill analysis to the Roseville-Benicia track section because they do not know yet which rail lines the Union Pacific Railroad may use east or north of Roseville to bring the oil into California.
State officials countered that there are only a handful of rail lines that could be used to bring the oil into the state, and all should be included in Benicia’s project risk analysis. The state noted that those rail lines pass through “high-hazard areas” where derailments are more common. In Northern California, those hazard sections are at Dunsmuir, the Feather River Canyon and near Colfax.
By issuing its letter, the state secures legal standing to sue Benicia if that city approves the project without redoing its risk studies. State officials this week declined to address the question of whether they would consider a lawsuit.
The letter from the state is one of hundreds Benicia officials said they received in the past few months in response to their initial environmental study. Benicia interim Community Development Director Dan Marks said the city and its consultants would review the comments and prepare responses to all of them, then bring those responses to the city Planning Commission for discussion at an as-yet undetermined date.
Under the Valero proposal, trains would carry about 1.4 million gallons of crude oil daily to the Benicia refinery from U.S. and possibly Canadian oil fields, where it would be turned into gasoline and diesel fuel. Valero officials have said they hope to win approval from the city of Benicia to build a crude oil transfer station at the refinery by early next year, allowing them to replace more costly marine oil shipments with cheaper oil.
Crude oil rail shipments have come under national scrutiny in the last year. Several spectacular explosions of crude oil trains, including one that killed 47 residents of a Canadian town last year, have prompted a push by federal officials and cities along rail lines for safety improvements.
SACOG and the cities of Sacramento and Davis have called on Benicia to require UP to give advance notice to local emergency responders, and to prohibit the railroad company from parking or storing loaded oil tank trains in urban areas. Local officials want the railroad to use train cars with electronically controlled brakes and rollover protection. Sacramento also has asked Benicia to limit Valero to shipping oil that has been stripped of highly volatile elements, including natural gas liquid.
Others in the Sacramento region, however, point out that rail safety is a federal issue, not one that cannot legally be dictated locally. In a joint letter, Stanley Cleveland and James Gallagher of the Sutter County Board of Supervisors said SACOG is overreaching, and a better approach would be to work with federal railroad regulators, as well as with Valero and UP, on safety issues.
The Union Pacific Railroad also has challenged the SACOG and Sacramento city perspectives, arguing that federal law pre-empts states and cities from imposing requirements on the railroads. “A state-by-state, or town-by-town approach in which different rules apply to the beginning, middle and end of a single rail journey, would not be effective,” UP officials said in a letter this month to SACOG.
State Sen. Ted Gaines, who represents much of Placer County and other rail areas, said the Valero project has his “full support.” Benicia’s analysis, he wrote, “affirms that this project is beneficial environmentally and economically and can be done safety given the prevention, preparedness and response measures in place by both Valero and Union Pacific Railroad.”
Among other commenters:
• 350 Sacramento, a local climate change group, warned that oil trains would cause an increase in carbon emissions and slow efforts to convert to renewable energies.
• The Capitol Corridor passenger train authority, which would share tracks with the oil trains, voiced concern about the safety of passengers, crews and communities, saying the Benicia analysis doesn’t look at the impact crude oil trains would have on Capitol Corridor or Amtrak passenger trains.
• The Sacramento Metropolitan Air Quality Management District said Benicia could ask Valero to fund local mitigation programs to reduce polluting impacts of trains in the region.
• UC Davis noted that the rail line passes through campus near the Mondavi Center and the UC Davis Conference Center, and called for additional training and equipment for Davis to deal with the possibility of a derailment and fire.
Read more here: http://www.mercedsunstar.com/2014/09/24/3866089_california-officials-challenge.html?rh=1#storylink=cpy
Surge in Rail Shipments of Oil Sidetracks Other Industries
Pileups at BNSF Railway Is Causing Delays for Shippers of Goods Ranging From Coal to Sugar
By Betsy Morris, Jacob Bunge and John W. Miller, March 13, 2014
A major snarl in railroad traffic is ricocheting through the supply chains of businesses across the U.S., causing delays and losses for shippers of goods ranging from coal to sugar.
Many of the problems stem from pileups at BNSF Railway Co. in a critical northern stretch of the country where it is shipping crude oil from North Dakota’s booming Bakken Shale region. The railroad, one of the biggest in North America, was already taxed by the heavy demand for oil transport. But its difficulties multiplied when it ran out of locomotives and crew, as a bitter winter forced it to use smaller trains.
That has caused a ripple effect across the country as shipments have been delayed. Deliveries of empty grain cars to farmers and grain elevators in the Midwest and Great Plains are running about two to three weeks late, the railroad says. The chief of a major sugar producer said he likes to load 50 railcars a day this time of year, but BNSF sometimes brings more than 50 and sometimes 30.
An executive close to big utility companies says coal-fired power plant inventories are running much lower than the usual 30 days. “The railroads tell us they aren’t serving power plants until their inventories are in single-digit days,” he said.
BNSF isn’t the only railroad with capacity problems, but its woes have been aggravated by a big grain harvest and its surging crude business.
The railroad knew it was in trouble when winter hit. “We found ourselves behind the curve,” said Bob Lease, vice president, service design and performance, for BNSF. “Now, we are finding we can’t fill all of the demand” as quickly as usual.
The backlogs could wind up costing shippers hundreds of millions of dollars, says Steve Sharp, president of Consumers United for Rail Equity, a group representing agriculture companies, manufacturers and utilities. His group has been pushing for tougher railroad regulation.
Andrew Walmsley, director of congressional relations for the American Farm Bureau Federation, a trade group for farmers, worries that continued capacity problems could hurt U.S. competitiveness in the world arena. “Our reliability as a trading partner comes into question anytime we can’t provide the most cost-competitive price in a predictable and timely manner,” he said.
BNSF is scrambling. The railroad is leasing and buying locomotives by the hundreds and hiring new crews. In mid-February it began building new track on top of frozen snow-covered ground along its main oil-patch route. It normally wouldn’t have attempted such a project until spring.
Mr. Lease says traffic should become more “normalized” by April 1, but he concedes that the railroad’s challenges will extend through 2014. “It takes a while to unravel,” he said.
BNSF, a unit of Warren Buffett’s Berkshire Hathaway Inc., BRKB +1.19% invented the business of carrying crude oil by rail when it launched its first long oil train, essentially a rolling pipeline, in 2009. The business has sharply exceeded its expectations. Shipments of crude by rail from North Dakota rocketed to a peak of 800,000 barrels a day last October from fewer than 100,000 barrels a day in 2010.
The surge has contributed to a tangle with potentially widespread impact. Larry Stranghoener, chief financial officer of fertilizer maker Mosaic Co. MOS +0.73% , says that transport problems, including the crunch in railroad capacity, could spell “a slower season.”
“The primary preoccupation of our sales force, our supply chain and our customers frankly is getting product to them in time for the spring season,” he told the Minneapolis-area company’s investors Wednesday. Any delays transporting Mosaic’s fertilizer to dealers could cause them to defer additional orders, he said.
Some shippers, eager to move their products, have opted to use trucks. Trucking rates compare with rail costs within a 500-mile radius, but beyond that companies can wind up paying four to five times as much on a per-ton basis, says one shipping official.
At Black Gold Farms, based in Grand Forks, N.D., Chief Executive Gregg Halverson says his company has had to pay more to hire trucks to transport its potatoes, which it sells to chip makers.
“There’s more demand for truck transportation, and that hits us between the eyes,” Mr. Halverson said. “It’s not only the actual availability of the trucks, but trucking firms having trouble getting drivers, because of demand from the oil patch.” He declined to estimate how much more he is paying for trucks.
American Crystal Sugar Co., which says it supplies about 15% of the nation’s sugar, had to slow production at three of its five plants for 11 days in mid-February because it was running out of storage space while waiting for trains to ship its sugar to food companies. That has disrupted the Moorhead, Minn.-based cooperative’s just-in-time delivery system, said David Berg, its chief executive. “The railroad just threw that into complete chaos,” he said.
He said delays in outbound shipments of sugar have interfered with the production schedules of American Crystal’s customers, many of them major food manufacturers.
While he said he wasn’t aware of any food companies that have had to halt production, “They’ve been running on fumes for weeks,” he said. “We’ve been humping trucks all over the U.S. to keep people in supply.” American Crystal supplies General Mills Inc., GIS +1.27% Kraft Foods Group Inc., KRFT +1.30% Nestlé SA, Mars Inc. and Kellogg Co. K +1.09% , among others.
Mr. Berg and Perry Cerminara, director of global sweetener and energy-risk management at Hershey Co. HSY +0.07% , called the problems caused by BNSF “serious” in a March 4 letter to regulators and stressed the “urgent” need to fix them. Mr. Cerminara wrote on behalf of the Sweetener Users Association, representing food manufacturers.
A spokesman for BNSF said it is working with customers individually to address their most critical issues and plans record spending on expansion this year.
Utilities are hoping railroads can improve their capacity before the busy summer season. “We try to build up inventories to around 40 days, so we’re counting on spring,” said one official at a coal-fired power plant. But, he added, “We’re not counting on a magic bullet.”
—Tony C. Dreibus, Annie Gasparro, Chester Dawson, David George-Cosh and Laura Stevens contributed to this article.