Canadian Refiners Set to Buy More U.S. Oil With Wider Discount
By Robert Tuttle, March 18, 2015 4:14 PM PDT
(Bloomberg) — Cheaper North American oil is poised to replace West African and Middle East cargoes at eastern Canadian refineries with U.S. crude prices at the lowest level compared with the international benchmark in 14 months.
Imports to Canada from outside North America averaged 244,089 barrels a day this month through March 15, down 27 percent from a year earlier, according to New York-based ClipperData, which tracks tanker shipments.
Canada, the world’s fifth-largest oil supplier, produces most of its oil in the western province of Alberta and exports it south to the U.S. A lack of pipelines means Canada’s eastern refineries depend on imports by tanker and train.
U.S. export “volumes have been growing pretty exponentially,” Katherine Spector, a commodities strategist at CIBC World Markets Inc. in New York, said by phone Wednesday. U.S. oil is “going to Eastern Canadian refineries and displacing waterborne light crude.”
U.S. crude oil exports averaged 478,000 barrels a day the week ended March 13, up almost eightfold from a year earlier, preliminary data from the Energy Information Administration show. Canada, the only country that U.S. producers can export to without restrictions, receives the bulk of the shipments.
Oil has flowed north as West Texas Intermediate crude’s discount to Brent averaged $9.43 a barrel this month from $2.41 in January as U.S. stockpiles rose to a 458.5 million barrels, the most in decades.
The U.S. displaced Algeria in 2013 as Canada’s biggest source of imported oil and accounted for about half of imports in the first eight months of last year, the country’s National Energy Board said in a November report. The trend was driven by availability of tight oil from North Dakota as well as Texas, New Mexico and Colorado.
Bakken crude from North Dakota traded at about $40 a barrel today versus $55 for oil from West Africa, according to data compiled by Bloomberg.
“Especially with lower prices, a difference of a dollar or so in transport costs is significant,” Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, said by phone Wednesday. “If you can bring it in from the U.S. rather than West Africa, it’s a little closer and cheaper.”
Expanded rail capacity has linked U.S. oil producers with Canada, Spector said. The movement parallels the movement of Bakken crude to U.S. East Coast by rail, which cut the region’s imports of crude from Nigeria by half in two years and from Algeria by 81 percent, EIA data show.
“The maritime provinces of eastern Canada do resemble the U.S. East Coast in many ways,” Antoine Halff, head of the International Energy Agency’s oil industry and markets division, said in a March 18 phone interview. “When Bakken crude started being railed to the U.S. East Coast in significant quantities, it displaced imports from West Africa.”
Repost from The Sacramento Bee [Editor: Highly significant development – a must read! – RS]
New crude oil report concludes risks of train spills are real
By Tony Bizjak, 10/23/2014
A train carrying fuel passes through a Bakersfield neighborhood last summer. The dramatic increase in crude oil shipments around the United States and Canada, often on 100-car trains, has led to several major derailments and fires. Jose Luis Villegas
Mile-long oil trains that are expected to crisscross California daily in the coming years pose significant risks to residents of urban areas, including Sacramento, a new report concludes, contradicting earlier studies that found no major safety concerns.
The report, issued by San Luis Obispo County officials, is based on a plan by Phillips 66 to transport crude oil on 80-car trains, five days a week, to its Santa Maria refinery, some likely through Sacramento. The authors looked at the cumulative impact of all oil trains that could come through California on a daily basis and came to the conclusion that the risk of oil spills and fires is real, and offered suggestions on how those issues should be addressed.
“Up to seven crude oil trains a day could travel on the stretch of track between Roseville and Sacramento,” the report reads. “The cumulative risk would be significant.”
The analysis, called a draft environmental impact report, contrasts with two recent analyses of similar crude-by-rail projects in Benicia and Bakersfield. Valero Refining Co. in Benicia and Alon USA in Bakersfield are proposing to transport crude oil twice a day on trains into their facilities. The Valero trains would come through downtown Sacramento, Roseville, West Sacramento and Davis, likely on the same tracks as the Santa Maria refinery trains. Some of the Bakersfield-bound trains also may come through Sacramento.
Those reports, issued earlier this summer, concluded the risk of spills and oil fires in Sacramento and other areas is not significant and requires no additional safety steps. Those earlier analyses have been challenged. An environmental group, Earthjustice, has sued Kern County over its Bakersfield project review. Two state safety agencies and the state attorney general have sent letters to Benicia challenging the adequacy of its review of the Valero project.
San Luis Obispo County officials said they decided to go beyond what was done in Benicia and Kern County – breaking new ground in California’s evolving crude-by-rail debate – by conducting a qualitative risk assessment, to understand the ramifications of “reasonable” worst-case oil spill scenarios. The new report is an amended version of an earlier report San Luis Obispo issued last year, which also had been challenged as inadequate.
“We have been trying to keep an eye on what is going on around the state, to understand comments coming in on the Valero project and others, and to take a holistic approach,” said San Luis Obispo County project manager Murry Wilson.
That qualitative assessment takes special note of spill risks in urban areas, saying, “The risk is primarily driven by the high-threat urban areas (Los Angeles, Bay Area and Sacramento) since these are the locations where fairly long stretches of track are in close proximity to heavily populated areas.” A series of tables in the report indicate that injuries and deaths could occur up to a third of a mile from a crash site in urban areas, if there was a tank car rupture and explosive fire.
The report points out that derailments of oil trains are rare. The chances of a train spilling more than 100 gallons of oil en route from the California border in the north state to the Santa Maria refinery are anywhere from one-in-19 to one-in-31 in any given year, depending on the route, the county estimated. Similarly, railroad industry officials say their data show that 99.99 percent of freight trains arrive at their destinations safely.
But the dramatic increase in the last few years of crude oil shipments around the United States and Canada, often on 100-car trains, has led to several major derailments and fires, prompting concerns from cities along rail lines, and federal safety officials. Last year in Canada, a runaway crude oil train crashed in a small town and exploded, killing 47 people, many as they slept. Several other crude oil trains have been involved in dramatic explosions around the country in the past year, prompting evacuations of residential areas.
At the moment, two crude oil trains run to or through Sacramento. One carries highly flammable Bakken crude from North Dakota through midtown Sacramento a few times a month to a distribution facility in the East Bay. Another periodically brings oil to a transfer station at McClellan Business Park in North Highlands. The company that runs the transfer station agreed this week to halt those shipments after air-quality officials concluded they had issued the permit in error.
The daily trains to the Santa Maria refinery, if approved, are expected to travel on both southern or northern routes into the state, starting in 2016, depending on where Phillips decides to buy its U.S.-produced oil. The Northern California route is uncertain east of Roseville. West of Roseville, trains are likely to run through downtown Sacramento, West Sacramento, downtown Davis and through East Bay cities, but also could take a route through Sacramento to Stockton, then west into the Bay Area.
San Luis Obispo County officials, in their report, also went considerably further than officials in Benicia and Kern County on the question of “mitigation” or preventive measures that could be put in place to minimize risks of crashes and spills.
Federal law pre-empts cities, counties and states from imposing any safety requirements on the railroads. San Luis Obispo County officials suggest, however, in their report that the county could try using its permitting authority over the proposed Phillips 66 refinery expansion to require Phillips to sign agreements with the railroads ensuring that the railroads use safer tanker cars than those currently in use, and employ better train-control computer technology than is currently in place.
An expert on railroad law told The Sacramento Bee this week that a court likely would have to decide if such a move is legal. “The federal pre-emption of the local regulation of railroads is very strong, about as strong a pre-emption as exists,” said attorney Mike Conneran of the Hanson Bridgett law firm in San Francisco. “It makes sense. You can’t have a different rule every time a rail car pulls into another state or city.”
“I can see there being a (legal) fight on that,” he said. “It is pretty close to the line in telling the railroad what to do. On the other hand, the county is putting the obligation on the refinery, not the railroad. I think the real question may come down to whether such a mitigation measure is feasible if the refinery can’t force the railroad to comply.”
If San Luis Obispo officials determine that they cannot feasibly mitigate for the Phillips 66 project’s potential hazards, the county can still approve the project, in accordance with California law, if county leaders adopt a “statement of overriding considerations,” saying that the project’s benefits outweigh the adverse effects.
Sacramento-area representatives, who have criticized Benicia’s review of its Valero project as inadequate, say they have not yet reviewed the San Luis Obispo analysis.
“We’ll do a similar analysis to what we filed with Benicia,” said Steve Cohn, chair of the Sacramento Area Council of Governments. He said San Luis Obispo’s determination that a train could spill here and cause significant damage is logical, but he wondered what proposed safety measures follow from that conclusion. “We’ll have to take a look,” he said.
It is uncertain at this point whether all of the crude oil train transport projects being proposed in California will actually be built. And, if they are, it’s uncertain still how many of them will route their trains through Sacramento and Northern California. The shipments will come from oil producing areas in North Dakota, Texas, Colorado and other states, as well as Canada.
Benicia officials did not respond to questions from The Bee for comment about their environmental analysis of the Valero project.
Notably, both Benicia and San Luis Obispo based a portion of their reports on analysis by an Illinois professor, Christopher Barkan, who also does work for a major rail industry lobbying group. Barkan’s methods of determining the potential frequency of oil spills have been questioned by state safety officials. Barkan has declined to speak to The Bee.
Barkan estimated that a spill from a Phillips 66 train between Roseville and Santa Maria might happen once in 46 years if the trains use the Altamont Pass and once in 59 years if the trains use the tracks along the Interstate 80 corridor. Those numbers appear to be based on trains using the best available tanker cars.
BILLINGS, Mont. (AP) — U.S. transportation officials said Wednesday that details about volatile oil train shipments are not sensitive security information, after railroads sought to keep the material from the public following a string of fiery accidents.
The U.S. Department of Transportation has ordered railroads to give state officials specifics on oil-train routes and volumes so emergency responders can better prepare for accidents.
Railroads have convinced some states to sign agreements restricting the information’s release for business and security reasons.
But the Federal Railroad Administration determined the information is not sensitive information that must be withheld from the public to protect security, said Kevin Thompson, the agency’s associate administrator.
Thompson added that railroads could have appropriate claims that the information should be kept confidential for business reasons, but said states and railroads would have to work that out.
Montana officials said they intend to publicly release the oil-train information next week.
The move is mandated under the state’s open records law and will help protect public safety by raising community awareness, said Andrew Huff, chief legal counsel for Gov. Steve Bullock.
“Part of the whole reason the federal government ordered that this information be given to states is to protect the communities through which these trains roll,” Huff told The Associated Press. “If there’s not some federal pre-emption or specific regulation or statute that prevents release of this information, then under our records laws we have to release it.”
Washington state officials also have said the oil-train details should be made public under state law. Last week, they gave railroads 10 days to seek a court injunction challenging the release of the information.
An oil-train derailment and explosion in Quebec last July killed 47 people. Subsequent derailments and fires in Alabama, North Dakota, Virginia and New Brunswick have drawn criticism from lawmakers in Congress that transportation officials have not done enough to safeguard against further explosions.
In response to the accidents, Transportation Secretary Anthony Foxx said in last month’s order that railroads must provide the details on routing and oil-train volumes to states. The order covered trains hauling a million gallons of oil or more from the Bakken region of North Dakota, Montana and parts of Canada.
The Bakken’s light, sweet crude is more volatile than many other types of oil. It’s been involved in most of the major accidents as the crude-by-rail industry rapidly expanded during the past several years.
Some states have agreed to requests from BNSF Railway, CSX and Union Pacific to keep the information confidential after the railroads cited security concerns. Those include California, New Jersey, Virginia, Minnesota and Colorado.
Officials in New York, North Dakota and Wisconsin said they still were weighing whether restrictions on the information would violate state open-records laws.
State officials who questioned the confidentiality agreements sought by the railroads have said the notifications about oil trains were not specific enough to pose a security risk.
BNSF — the main carrier of crude oil in many western states — was notified late Tuesday of Montana’s intentions. A representative of the Texas-based company had said in a June 13 letter that BNSF would consider legal action if Montana moved to release the details on oil shipments.
“We must be cognizant that there is a real potential for the criminal misuse of this data in a way that could cause harm to your community or other communities along the rail route,” wrote Patrick Brady, BNSF’s director of hazardous materials, in a letter to a senior official at the Montana Department of Environmental Quality.
Company spokesman Matt Jones said Wednesday that at this time BNSF has no plans to ask a court to intervene.
While it’s important for emergency planners to have the information, Jones added, BNSF will “continue to urge discretion in the wider distribution of specific details.”
A second railroad, Montana Rail Link, submitted notifications earlier this month revealing that its tracks were carrying three oil trains a week along a route from Huntley, Montana, to Sandpoint, Idaho. The railroad said the trains pass through as many as 12 counties across southern and western Montana and through Bonner County in Idaho, according to copies of the documents obtained by the AP.
U.S. crude oil shipments by rail topped a record 110,000 carloads in the first quarter of 2014. That was the highest volume ever moved by rail, spurred by the booming production of shale oil from the Northern Plains and other parts of the country, according to the Association of American Railroads.
FILE – This March 25, 2014 file photo shows perforating tools, used to create fractures in the rock, lowered into one of six wells during a roughly two-week hydraulic fracturing operation at an Encana Corp. well pad near Mead, Colo. The energy boom is scrambling national politics. Democrats are split between environmentalists and business and labor groups. Some deeply-conservative areas are allying with conservationists against fracking, the technique largely responsible for the surge. (AP Photo/Brennan Linsley, File)
DENVER (AP) — The U.S. energy boom is blurring the traditional political battle lines across the country.
Democrats are split between environmentalists and business and labor groups, with the proposed Canada-to-Texas oil pipeline a major wedge.
Some deeply conservative areas are allying with conservationists against fracking, the drilling technique that’s largely responsible for the boom.
The divide is most visible among Democrats in the nation’s capital, where 11 Democratic senators wrote President Barack Obama this month urging him to approve the Keystone XL pipeline, which is opposed by many environmental groups and billionaire activist Tom Steyer. The State Department said Friday that it was extending indefinitely the amount of time that federal agencies have to review the project, likely delaying a pipeline decision until after the November elections.
Several senators from energy-producing such as Louisiana and Alaska have distanced themselves from the Obama administration, while environmental groups complain the president has been too permissive of fracking.
There is even more confusion among Democrats in the states as drilling rigs multiply and approach schools and parks.
California Gov. Jerry Brown was shouted down at a recent state convention by party activists angry about his support for fracking. New York Gov. Andrew Cuomo has kept fracking in his state in limbo for three years while his administration studies health and safety issues. In Colorado, Gov. John Hickenlooper has drawn environmentalists’ ire for defending the energy industry, and a ballot battle to regulate fracking is putting U.S. Sen. Mark Udall in a tough situation.
But the issue cuts across party lines.
Even in deeply Republican Texas, some communities have restricted fracking. In December, Dallas voted to effectively ban fracking within city limits.
“You’re looking at a similar boom as we had in tech in 1996,” said Joe Brettell, a GOP strategist in Washington who works with energy companies. “The technology has caught up with the aspirations, and that changes the political dynamics fundamentally.”
Those technological advances have made it possible for energy companies to tap deep and once-untouchable deposits of natural gas and oil. They include refinements in hydraulic fracturing, or fracking, which is the injection of chemicals into the ground to coax buried fossil fuels to the surface.
The U.S. is now the world’s largest natural gas producer and is expected to surpass Saudi Arabia soon as the world’s greatest oil producer, becoming a net exporter of energy by 2025.
The boom has brought drilling rigs into long-settled neighborhoods, raising fears of water contamination, unsafe traffic and air pollution, and outraging residents.
Pollster Steven Greenberg said Cuomo provides little notice before his public appearances because anti-fracking protesters will crash his events. Republicans blame the governor for stymieing growth. New York voters split evenly on fracking, with Democrats only modestly more likely to oppose it than Republicans.
“No matter what he decides, he’s going to have half the people upset with him,” Greenberg said. “From a purely political point of view, it’s hard to argue with his strategy — punt.”
In California, Brown has a long record of backing environmental causes, but he’s drawn the wrath of some environmentalists for supporting fracking. One group cited the $2 million that oil and gas companies have given the governor’s causes and campaigns since 2006. Democrats in the Legislature have proposed a freeze on fracking but are not optimistic Brown will support it.
The Democratic split is sharpest in Colorado.
Hickenlooper, a former oil geologist, has been a staunch supporter of fracking; at one point he said he drank fracking fluid, albeit a version without most of the hazardous chemicals. His administration has fought suburban cities that have banned fracking, insisting that only the state can regulate energy exploration.
In response, activists are pushing 10 separate ballot measures to curb fracking. One measure would let cities and counties ban it. The effort has the support of Colorado Rep. Jared Polis, a wealthy Democrat. At the state party’s recent convention, he gave a rousing speech nominating Hickenlooper for a second term but acknowledged “none of us … are going to agree on every single issue.”
Some Colorado Democrats worry that the ballot push is bringing energy groups who generally support Republicans into the state. One pro-fracking group has spent $1 million in TV ads.
Jon Haubert, a spokesman for the group, said leaders in both parties think the measures are economically dangerous. “We look at that and say this seems to be an extreme opinion,” he said, referring to the initiatives.
The ballot measures will force Democratic candidates to choose among environmentalists, labor groups and Colorado’s business community, whose political and financial support is vital to Democrats in the swing state.
Udall embodies this dilemma. He’s an environmentalist in a tight re-election campaign with Republican Rep. Cory Gardner, who represents an oil-and-gas rich, mostly rural congressional district.
In an interview, Udall declined to say if cities should have the right to ban fracking. “I’m not a lawyer,” he said.
Hickenlooper has put in place several landmark regulations — requiring that drilling occur a set distance from homes and schools and limiting methane emissions from energy exploration. But that has not assuaged activists such as Laura Fronckwiecz, a former financial worker who got involved in an effort to ban fracking in her moderate suburb of Broomfield after a drilling well was planned near her children’s elementary school.
A Democrat, she’s aghast at her party’s reluctance to embrace the cause. “Ten years ago, I’d say it was a progressive cause they’d get behind,” Fronckwiecz, 41, said, “but much has changed, and the politics of oil and gas are not what you’d expect.”
Fronckwiecz says she has Republicans and Libertarians in her coalition, as do activists pushing to limit fracking in energy-friendly Texas. While the GOP-dominated Legislature in Texas has rejected efforts to limit drilling, activists have earned small victories in towns and cities that have limited drilling, and one big win, the Dallas vote.
Sharon Wilson, Texas organizer for the environmental group Earthworks, says she gets a warm reception from conservatives and Libertarians. “When they come into your community and start fracking,” she said, “it does not matter what your political affiliation is.”
