Repost from The Omaha World-Herald

Nebraska has emerged as ground zero in oil transport showdown

September 21, 2014, By Russell Hubbard

OAKLAND, Neb. — If you visit here and turn off Oakland Avenue toward the railroad tracks, you just might find Brendan Murray prowling up and down the street, cataloging the cracks in the pavement and the scars on the buildings.

The owner of an apartment building facing the railroad tracks says problems with his 100-year-old structure accelerated with the massive increase in BNSF Railway trains hauling crude oil in tanker cars. Murray also says a derailment and crude oil fire would be deadly for Oakland, population 1,244.

“Keep it underground,” Murray says, referring to transporting crude by pipeline.

Not so fast, says Jane Kleeb. She is not a fan of crude trains either, but she is also the director of Bold Nebraska, the group opposed to construction of the Keystone XL pipeline. It would bring 1 million barrels of crude oil per day across the state.

Kleeb said her group doesn’t expect the world economy to forgo fossil fuels and survive on renewables right now. But she said the pipeline proposed to transport northern crudes to refineries presents too much environmental risk.

“Accidents are going to happen and it is Nebraska that is going to wind up paying for it,” Kleeb said.

All of which leaves a rather obvious question: If neither by train nor pipeline, just how is oil supposed to get from where it is produced to where it is refined into fuels and other materials that power the U.S. economy?

With its main modes of transport assaulted on all sides, the petroleum industry faces a major showdown, and Nebraska is shaping up to be ground zero.

Central to both major U.S. railroads hauling crude oil — Union Pacific is based in Omaha and BNSF’s parent company is based here — the Cornhusker State is also the terminus of the existing Keystone pipeline and is the proposed ending point for the much-debated and delayed Keystone XL.

“Some of the people who don’t want us to transport oil don’t want us to use oil,” said John Felmy, chief economist for the American Petroleum Institute, a group funded by oil companies. “We need to do a better job about telling our story, but we also need to be honest about the realities of energy.”

The United States last year consumed 6.89 billion barrels of petroleum products, producing 2.7 billion barrels itself, making it the global leader. Oil is everywhere — about 71 percent goes for gasoline and other fuels. Other common uses are rubber, fabrics and solvents.

There are no current replacements for oil, Felmy said, calling renewable energies promising and worthy of development but not an immediate substitute. And “choking off the supply points and the transport links would have serious implications for the economy,” Felmy said.

One of those transport links runs through Oakland. The rear of the buildings along Oakland Avenue, 20 or so brick and masonry two- and three-floor structures, face the north-south railroad tracks operated by BNSF Railway, the employer of 5,000 people in Nebraska that is owned by Omaha’s Berkshire Hathaway Inc.

The closest buildings, such as Murray’s 12-unit apartment building, are about 45 yards away.

The tracks and the town in Burt County have been together for more than 100 years. But the oil trains are a recent development. Oil shipments from North Dakota’s recently tapped shale formations first hit 800,000 barrels a day late last year, up from fewer than 100,000 barrels a day in 2010.

BNSF is by far the largest carrier, its oil trains entering Nebraska at South Sioux City from routes in Iowa. Oil has been a growth business for BNSF: Volumes from shale formations such as those in North Dakota have risen to 620,000 barrels per day last year, from 59,000 barrels per day in 2010.

Transporting crude has been a huge boost for BNSF, bought for $26 billion in 2009 by Omaha’s Berkshire Hathaway. BNSF operating revenue, the main financial metric by which railroads are gauged, has risen almost 60 percent since 2009, to about $22 billion last year from $14 billion.

“You can feel the ground surging when they come through now,” said the 72-year-old Murray, a graduate of Omaha’s Benson High School who later owned a general contracting company. “It’s just that the railroad has always been here and people don’t pay it much attention anymore.”

A tour of Murray’s street reveals a collapsed brick wall, lots of hairline cracks and loose masonry. Murray acknowledges that most of the buildings are 100 years old or older, and that he can’t prove the cause. But he said he suspects the culprits are the heavy liquid cargo and the increased frequency of trains passing by because of sharply higher crude shipments.

BNSF says: Nonsense. “We know of no mandated statutes requiring maximum or minimum weights for trains, although there are different weight rails according to the type, size and speed of trains,” said BNSF spokeswoman Roxanne Butler.

The railroads say oil by rail, while the subject of much debate, is quite safe.

In 2012, according to the Association of American Railroads, the incident rate for release of hazardous materials from rail cars was 0.013 per thousand carloads, down from 0.14 in 1980. That means, the association says, that 99.99 percent of hazardous rail cargo shipments are incident-free.

It is a highly regulated industry. Federal regulators set the standards for hauling crude and other hazardous materials, from the route selection and track inspections to train speeds and personnel training, the railroad association says.

“According to the Federal Railroad Administration, 2013 was the safest year in history for the rail industry,” said BNSF’s Butler. “In 2013, BNSF experienced the fewest number of mainline derailments in its history. Rail is the safest mode of land transportation for freight in general and is one of the safest ways to transport crude oil and hazardous materials.”

Butler said BNSF considers all accidents preventable, and is spending $5 billion this year on capital improvements. The Fort Worth, Texas-based company, about tied with Union Pacific as largest U.S. railroad in 2013 operating revenue, also inspects track more frequently than required by regulators, Butler said.

Union Pacific is spending $4.1 billion on capital improvements this year, much of that related to track safety.

U.P. Chief Executive Jack Koraleski said the industry also is working with the Department of Transportation to make existing crude tank cars safer, and to develop a new and stronger one.

There has never been a fatal U.S. oil-train incident, though 47 people were killed last year when one derailed and blew up in Quebec, Canada.

Koraleski, whose company employs about 8,000 people in Nebraska, said the probabilities of such accidents are small and the trade-offs worth it.

“We have been hauling crude by rail for a long time,” said Koraleski, whose oil shipments rose 20 percent last year. “If the pipelines don’t, and the railroads don’t, the alternatives are fully negative for the U.S. economy.”

As for the Keystone XL pipeline proposed by pipeline operator TransCanada, it is on hold pending permit approval by President Barack Obama.

It should not be approved, said Kleeb, the director of Bold Nebraska. She said the pipeline endangers the Ogallala Aquifer and only encourages oil companies to spend additional money chasing harder-to-get deposits, such as shale formations in the northern United States and southern Canada. Those require rocks underground to be broken up under high pressure to release the petroleum.

Kleeb says she and her group are not against fossil fuels, acknowledging that it would be impractical to go 100 percent renewable immediately. She also said ceasing production from hard-to-get deposits in North Dakota’s Bakken region isn’t going to send the economy into a malaise. The Bakken produces about a million barrels a day out of the 19 million consumed each day in the country.

“What we need to do is slow down,” Kleeb said. “The oil isn’t going anywhere. You can make all the money you need to make.”

Mark Johnson, the Nebraska spokesman for TransCanada, said pipelines are the most efficient method of transporting oil between distant points, passing along the lowest costs to consumers.

“The bottom line is that the United States needs oil and it is going to get to market one way or another,” Johnson said.

The Keystone pipeline, now about four years old, runs from the southern Canadian province of Alberta and terminates in southern Nebraska at Steele City, the proposed endpoint for the Keystone XL.

Johnson said danger to the Ogallala is low, with nature having provided the aquifer with a deep and effective filtering system of sand and rock. Pipelines and oil wells already dot the Ogallala landscape, Johnson said, and the existing Keystone pipeline has operated without serious incident.

Like oil-train accidents, pipeline incidents tend to be attention-grabbing, such as the one in Kalamazoo, Michigan, in 2010, when an oil pipeline broke and spilled almost 1 million gallons. Cleanup costs have approached $1 billion.

From 1994 through 2013, there were 2,715 significant pipeline incidents, according to the federal Pipeline & Hazardous Materials Safety Administration. That is an average of 136 a year, defined as causing death or hospitalization, incurring costs of more than $50,000, or erupting in fire or explosion. The incidents have caused 40 deaths and 132 injuries.

Joseph Schwieterman, a professor at Chicago’s DePaul University specializing in transportation, said perfect safety in the U.S. economy’s supply chain — train or pipeline or any other mode — is an unreasonable expectation.

“The accidents that happen are headline makers, but the risks are manageable,” he said. “The hype is out of proportion.”

Schwieterman also said there is a generational component to opinions on oil production and the transportation of its products.

“Oil invokes a negative, visceral reaction among young people,” Schwieterman said, acknowledging that high-profile troubles such as the 2010 BP Gulf Coast oil rig blowout has had the same effect on some people as the Exxon Valdez tanker spill in 1989.

“People tend to forget about the value of energy independence,” he said, “and that such independence will come at a certain price.”

The Omaha World-Herald Co. is owned by Berkshire Hathaway Inc.