By Roger Straw, the Benicia Independent, March 3, 2016
Planning Commission WRITTEN TRANSCRIPTS – Feb. 8-11 Hearings
On March 4, 2016, the City of Benicia released written transcripts of the public hearings on Valero Crude By Rail, Feb. 8-11. Download directly from the City’s website, or from below. Note that “Condensed Transcripts” include all text, but pages are reduced to appear 4 pages on each page – AND they also include an extensive INDEX at the end. “Full Transcripts” show a single page on each page, and have no index.
U.S. market is so oversupplied with oil that traders are experimenting with a new place for storing excess crude
By Nicole Friedman and Bob Tita, Feb. 28, 2016 9:09 p.m. ET
Rail tanker cars sat on tracks at the Red River Supply Inc. rail yard in Williston, N.D., in February 2015. PHOTO: DANIEL ACKER/BLOOMBERG NEWS
The U.S. is so awash in crude oil that traders are experimenting with new places to store it: empty railcars.
Thousands of railcars ordered up to transport oil are now sitting idle because current ultralow crude prices have made shipping by train unprofitable. Meanwhile, traditional storage tanks are running out of room as U.S. oil inventories swell to their highest level since the 1930s.
Some industry participants are calling the new practice “rolling storage”—a landlocked spin on the “floating storage” producers use to hold crude on giant oil tankers when inventories run high.
The combination of cheap oil and surplus railcars has created a budding new side business for traders. J.P. Fjeld-Hansen, a managing director for trading company Musket Corp., tested using railcars for storage last year and found he could profit by putting the oil aside while locking in a higher price to deliver it in a later month.
The company built a rail terminal in Windsor, Colo., in 2012 to load oil shipments during a boom in U.S. oil production. Now, Mr. Fjeld-Hansen says, “The focus has shifted from a loading terminal to an oil-storage and railcar-storage business.”
Energy Midstream, a trading company based in The Woodlands, Texas, stored an ultralight oil known as condensate on Ohio railcars last month for about 15 days before shipping it to a buyer in Canada.
Dennis Hoskins, a managing partner at Energy Midstream, says there are so many unused tank cars that he is constantly hearing from railcar owners hoping to put them to use. “We get offers everyday for railcars,” he said.
The use of railcars for storage could be limited by the cost of track space and safety and liability concerns that have followed a string of high-profile transport accidents. Issues range from leaky cars to the risk of collisions and fires.
Federal regulations require railroads that store cars loaded with hazardous materials like oil to comply with strict storage and security measures to keep the cars away from daily rail traffic. Railroads and users face responsibility for leaks, collisions or other mishaps.
“I don’t want the liability,” said Judy Petry, president of Oklahoma rail operator Farmrail System Inc. “We prefer not to hold a loaded car.”
Still, the oil has to go somewhere. The surge in shale-oil production has created a massive glut that the industry is struggling to absorb. BP PLC Chief Executive Bob Dudley joked in a speech this month that by midyear, “every storage tank and swimming pool in the world will be filled with oil.”
Khory Ramage, president of Ironhorse Permian Basin LLC, which operates a rail terminal in Artesia, N.M., said he hears regularly from traders looking to store crude in his railcars.
Crude-storage costs “have been accelerating, just due to the demand for it and less room,” he said. “You’ll probably start seeing this kick up more and more.”
U.S. crude inventories rose above 500 million barrels in late January for the first time since 1930, according to the Energy Information Administration.
The cheapest form of storage—underground salt caverns—can cost 25 cents a barrel each month, while storing crude on railcars costs about 50 cents a barrel and floating storage can cost 75 cents or more. The cost estimates don’t include loading and transportation.
Railcars hold between 500 and 700 barrels of oil, less than a cavern, tank or ship can store.
The use of U.S. railcars to transport large volumes of oil picked up steam a few years ago as a byproduct of the fracking boom. Fields sprung up faster than pipelines could be laid, so producers improvised and shipped their output to market by rail. Companies soon realized railroads offered greater flexibility to transfer oil to whomever offered the best price. Some pipeline companies even joined the rail business, building terminals to load and unload oil. U.S. oil settled Friday at $32.78 a barrel, down nearly 70% from mid-2014.
The plunge in oil prices brought that activity to a halt. Analysts estimate there are now as many as 20,000 tank cars—about one-third of the North American fleet for hauling oil—parked out of the way in storage yards or along unused stretches of tracks in rural areas.
Producers and shippers who signed long-term leases for the cars during the boom are stuck paying monthly rates that typically run $1,500 to $1,700 per car. Traders can pay those prices and still profit. Oil bought at the April price and sold through the futures market for delivery a year later could net a trader $8.07 a barrel, not including storage or transportation costs.
As central storage hubs fill up, oil companies are more willing to pay for expensive and remote types of storage, said Ernie Barsamian, principal of the Tank Tiger, which keeps a database of companies looking to buy and sell oil storage space.
The Tank Tiger posted an inquiry Wednesday on behalf of a client seeking 75,000 barrels of crude-oil storage or space to park 100 to 120 railcars loaded with crude.
Mr. Barsamian likened the disappearance of available storage to a coloring book where nearly all the white space has been filled in.
Repost from the East Bay Express [Editor: I am posting this excellent review by Jean Tepperman belatedly, with thanks for East Bay Express’ regional coverage of a Benicia story with huge regional and national implications. I’ve not read a better review of the Feb. 8-11 Benicia Planning Commission hearings. – RS]
Benicia Blocks Oil-By-Rail Plan
By Jean Tepperman, February 12, 2016
Valero Refinery in Benicia. – WIKIMEDIA COMMONS
The little town of Benicia is looking to become the next link in the chain barring crude oil from traveling by rail to the West Coast. After four evenings of contentious hearings, the Benicia Planning Commission on Thursday unanimously rejected Valero refinery’s proposal to build a rail spur that would allow it to import up to 70,000 barrels a day of “North American crude oil” — meaning extra-polluting crude from Canada’s tar sands and the highly explosive crude from North Dakota’s Bakken shale fields. Both fossil fuels have been involved in numerous derailments, explosions, and fires, including a 2013 fire and explosion in Lac Megantic, Quebec that killed 47 people.
Starting on Monday, planning commissioners, led by Commissioner Steve Young, grilled staff members about their decision to recommend approval of the Valero project, identifying inconsistencies and pointing to problems that the project would create, from blocking traffic to increasing pollution to potential oil spills and other emergencies that the city would not be able to cope with. The central issue that emerged, however, was whether the city had the authority to make decisions about the project.
The staff report actually said the benefits of the project did not outweigh the potential harm. Shipping crude oil by rail, the staff found, would have “significant and unavoidable” impacts on air quality, biological resources, and greenhouse gas emissions. These impacts would conflict with air quality planning goals and state goals for reducing greenhouse gas emissions. But the city can’t prevent any of this, the staff report said, because only the federal government has the authority to regulate railroads.
Bradley Hogin, a lawyer whom the city hired on contract to advise on this project, said federal law prevents local governments from interfering with railroads, a principle referred to as “preemption.” According to the interpretation of “preemption” described by Hogin and city staff, local governments are not permitted to take actions that “have the effect of governing or managing rail transport,” even indirectly. And they are not allowed to make decisions about a project based on impacts of rail shipping connected with that project.
“Hogin is making a case that would affect cities across the nation dealing with crude by rail,” said environmental activist Marilyn Bardet in an interview. “They were going to create a legal precedent on preemption here.”
Bardet reported that public testimony by representatives of environmental organizations and “two young women from the Stanford-Mills Law Project made it clear that “there are many people who would disagree with Hogin’s interpretation.”
Roger Lin, lawyer with Communities for a Better Environment, said in an email that, contrary to Hogin’s claims, the California Environmental Quality Act actually requires local governments to consider “indirect or secondary effects that are reasonably foreseeable and caused by a project, but occur at a different time or place.” Valero is not a railroad, he said, so the “preemption” doctrine does not bar the city from using its land-use power to reject the project.
However “preemption” is interpreted, Bardet said, “the commissioners seemed uncomfortable with being told they would have to approve the project based on considerations they couldn’t accept.” Late in the hearing process, commission chair Donald Dean said, “I understand the preemption issue on a theoretical legal level, but I can’t understand this on a human level.”
Bardet expressed appreciation for the commissioners’ concern. “My sense was that these guys are real human beings,” she said. “They all listened carefully. None of them was asleep.”
Project opponents packed the hearing room for four straight nights, filling two overflow rooms on the first night. People came from “uprail” communities, including Davis and Sacramento, as well as allies from across the Bay Area, Bardet said.
Opposition to the project has been led by a community group, Benicians for a Safe and Healthy Community, formed in 2013 when the city seemed ready to approve the project without requiring any environmental impact study. “We joined with other refinery communities in the Bay Area Refinery Corridor Coalition” and in a coalition working to persuade the Bay Area Air Quality Management District to pass tough new regulations on refinery pollution, Bardet said. She said support from the National Resources Defense Council and Communities for a Better Environment was also important. “The grassroots came alive together,” she said.
Many of these organizations, like the Benicia group, are concerned, not only about the hazards of shipping crude by rail, but by the impact of refining the extra-polluting crude oil from Canada’s tar sands, Bardet said. She noted that the city’s environmental review of the project made no mention of this issue, although it is well established that refining dirty crude oil, like oil from tar sands, emits more health-harming pollution as well as more greenhouse gases.
Valero is expected to appeal the planning commission decision to the city council, which could meet to decide on the issue as early as mid-March. “The city council is going to be hard-pressed to reject the views of their own planning commission,” Bardet said.
She emphasized the significance of this decision for the national and international issue of shipping crude oil by rail. “The whole world is watching,” she said. “I just got a message from a guy in New Jersey congratulating us.”
Hazards that enabled the Weyauwega train disaster 20 years ago still exist
By Eric Hansen, March 3, 2016
The Weyauwega train derailment occurred on March 4, 1996, forcing the evacuation of 2,000 people who had to leave their pets behind. —PHOTO: Courtesy
A ferocious explosion and fireball followed a Wisconsin Central train wreck in the frigid predawn hours of March 4, 1996, in Weyauwega, Wisconsin. Two thousand citizens, many fleeing without their pets or medications, evacuated for 18 days as the fires burned.
Authorities feared additional explosions that would catapult shrapnel a mile or more from the derailed propane tank cars. Gas lines were shut off; water pipes froze in unheated houses.
Four days after the initial explosion, Wisconsin National Guard armored personnel carriers transported residents into the danger zone to rescue their pets. Wearing helmets and flak jackets, the evacuees dashed into their abandoned homes to retrieve hungry dogs, cats and parakeets.
Ever so slowly, specialists drained the railroad tank cars of their volatile cargo and Weyauwega pulled back from the brink. Federal investigators blamed a cracked rail and deficient track maintenance for the derailment.
March 4, 2016 is the 20th anniversary of the Weyauwega catastrophe. Unfortunately, railroad track failures remain a concern today — a concern greatly magnified by massive increases in explosive crude oil train traffic in recent years.
Wisconsin, now one of the busiest routes in the nation for this dangerous cargo, is part of a nationwide surge. In 2008, railroads carried 9,500 tank carloads of crude oil in the United States. By 2013, that number had risen to 407,761.
Connect the dots on the systemic danger the oil trains bring — and the details of the Weyauwega incident — and a reasonable citizen would question whether a Weyauwega scale disaster, or worse, is looming.
Key points: highly explosive crude oil from North Dakota is traveling in tank cars that are aging and were never designed with this kind of volatile cargo in mind. In addition, the sheer weight of mile-long oil trains stresses railroad tracks and aging bridges.
Those concerns grew when a Canadian government investigation traced the path of an oil train that exploded in Lac Megantic, Quebec on July 6, 2013, killing 47 people.. The train had traveled through Wisconsin and Milwaukee on Canadian Pacific tracks before exploding in Quebec.
As knowledge of the dangers of oil train traffic spread, something else became clear: a lack of transparency on the part of the railroads. Milwaukee citizens, local elected officials and journalists sought to obtain safety inspection reports for the corroded, century-old, 1st St. railroad bridge.
Canadian Pacific railroad officials refused to share the inspection reports for half a year. Federal Railroad Administration director Sarah Feinberg announced a new program to obtain bridge safety reports on Feb. 19, 2016, indicating some progress.
But bridge inspection reports are only the tip of the iceberg. Railroads are not sharing information on what levels of insurance they carry, their worst-case accident scenario plans or how they make critical routing decisions that bring oil trains through densely populated areas.
Any illusion that federal regulators are exercising effective due diligence on oil train traffic faded when the Department of Transportation released an audit of the FRA on Feb. 26, 2016.
That report’s opening words cite the Lac Megantic disaster and the vast increase in crude oil train traffic. However, the audit summarizes FRA’s overview of oil train traffic as dysfunctional and lacking analysis on the impact to towns, cities and major population areas. It also notes a lack of criminal penalties for safety violations.
When citizens push, governments move into action. Insist that your elected representatives take effective action to protect our communities from dangerous crude oil train traffic.
Outdoor writer Eric Hansen is a member of Citizens Acting for Rail Safety – Milwaukee Area. He will be one of the presenters at “Your Right to Know – Oil Train Risks to Metro Milwaukee”, a March 12 forum hosted by the League of Women Voters. For more information, see lwvmilwaukee.org
