Tag Archives: Desmogblog

Crude By Rail, Derailment, DOT-111, Explosion, Fire, Insurance and liability, Lac-Mégantic, Oil Industry, Rail industry, Victim compensation

Victim compensation after oil train derailment: Big Oil cost of doing business?

Repost from DESMOG

Cost of Doing Business? Oil Companies Agree To Pay For Some of Lac-Megantic Damages, But Not to Solve the Real Problems

By Justin Mikulka, June 21, 2015 – 05:58
Image credit: Wikimedia

Although insisting the industry is not to blame, several of the oil companies involved in the fatal Lac-Megantic oil train accident in 2013 have agreed to contribute to a fund to compensate the families of the 47 victims in that accident.

The Wall Street Journal reported recently that oil companies Shell, ConocoPhillips, Marathon and Irving have all agreed to contribute to the fund to avoid future litigation, along with General Electric and the Canadian government. While the actual amounts contributed by most companies involved are not available, the total fund is reportedly at $345 million. That sounds like a lot of money but still is less than the $400 million retirement package for Exxon’s last CEO, for example.

Canadian Pacific Railway Ltd. hasn’t agreed to the settlement, according to the Bangor Daily News, which reports that the judge in the case has delayed his decision on the settlement. Canadian Pacific has asked the court to shield it from future litigation and challenged the Quebec provincial court’s jurisdiction.

It is no surprise that oil companies would prefer to pay fines of tens of millions of dollars to avoid future litigation as well as duck responsibility for the full cost of the cleanup. Rebuilding the destroyed Lac Megantic property is expected to take as long as eight years and as much as $2.7 billion.

This approach has proven successful for the oil and rail industry in the past. In 2009, when a Canadian National (CN) ethanol train derailed in Cherry Valley, Illinois resulting in a fire and the death of one woman and injury to several others, the railroad paid the surviving family members $36 million.

The National Transportation Safety Board laid some of the blame for that tragedy on the “inadequate design of the tank cars, which made them subject to damage and catastrophic loss of hazardous materials during the derailment.”

But CN just paid the $36 million and the industry kept using the same inadequate DOT-111 tank cars to move ethanol and crude oil. It was the DOT-111 tank cars that were involved in the Lac-Megantic accident four years later, and the same tank cars that the oil industry is currently fighting to keep on the rails as long as possible.

There is no question it is far more profitable for the oil and rail industries to continue to use unsafe rail tank cars and to just pay off the families of the victims or for environmental damages from oil spills after any accidents than to invest in safer tank cars.

Canadian National has had two oil train derailments already in 2015 which the company reports have cost it $40 million. However, CN still reported over $700 million in net income for just the first quarter of 2015.

Business as usual in the oil-by-rail industry is highly profitable. Which is why the oil and rail industries are fighting against any safety measures that would require investment and cut into profits.

After the faulty tank cars, the two other issues the oil industry has fought against are modernized braking systems and removing the volatile and explosive natural gas liquids from the oil itself via stabilization.

Both of these proven safety measures would cost the industry billions of dollars to implement. So they haven’t done anything. It is far more profitable to live with the consequences of some accidents and make relatively small payouts to avoid lawsuits than it is to invest in safe alternatives.

In 2013, the year of the Lac-Megantic disaster, the big five oil companies made $93 billion in profits. Fines and settlements like those resulting from oil train disasters or deadly refinery accidents are simply a cost of doing business. And for these companies, it turns out to be a very small cost when compared to the profits.

In a forum on rail safety held in Albany, NY this month, emergency first responders from three oil train accidents (Lac-Megantic, Lynchburg, Virginia and Galena, Illinois) recounted their experiences dealing with oil train fires and explosions. While offering excellent insights to the risks involved with oil-by-rail, there also was insight into how the rail companies responded once the accidents occurred.

For both the Lynchburg and Galena accidents, it was noted that the rail companies were on the scene almost immediately. And they rebuilt the tracks and got them back in operation as soon as possible because in Galena, rail downtime was costing the company $1 million an hour. When money is at stake, the rail companies jump into action.

Did the rail company jump into action the day before the Lynchburg rail accident when an inspection revealed a defect in the track in Lynchburg? No.

At the forum in Albany, Lynchburg Battalion Chief Robert Lipscomb summed up the situation nicely.

“You got to remember their business is making money. Our business is taking care of emergencies. So sometimes those two don’t line up exactly right,” Lipscomb said.

When your business is making money, it is much easier to accomplish your goals by lobbying regulators to ensure weak regulations and paying out meaningless fines when something goes wrong than to invest in safety.

The oil trains will return to Lac-Megantic in 2016, with the same inadequate tank cars and 19th century braking systems. And they will be full of unstabilized, dangerous and very profitable oil.

Bakken Crude, Blast zone, Crude By Rail, Federal Regulation (U.S.), Oil stabilization, State regulation

Safety of Citizens in Bomb Train Blast Zones in Hands of North Dakota Politicians

Repost from Desmogblog

Safety of Citizens in Bomb Train Blast Zones in Hands of North Dakota Politicians

2014-09-05, Justin Mikulka
Lac Megantic train explosion
Lac Megantic train explosion

When North Dakota Congressman Kevin Cramer was asked recently if it was scientifically possible to make Bakken crude oil safer by stripping out the explosive natural gas liquids with a process like oil stabilization, his response was quite telling.

“So scientifically can you do it? Sure, but you have to look at it holistically and consider all of the other elements including economics, and is the benefit of doing something like that does that trump other things like speed of trains, and what kind of cars,” he said.

This is very similar to the comments made by Lynn Helms of the North Dakota Department of Mineral Resources according to the July 29 meeting minutes provided to DeSmogBlog by the Industrial Commission of North Dakota.

“In response to a question regarding other mechanisms besides oil conditioning in the field, Mr. Helms stated there are other mechanisms — none of them without a significant downside….It makes sense to do the conditioning in the field. There are other options to do it downstream somewhere in a very large and very expensive operation.”

In a June 24 e-mail obtained by DeSmogBlog through a freedom of information request, Helms identified himself as “the primary contact for Governor Dalrymple’s team on the crude safety issue” in response to an inquiry from the Department of Energy about who would be working on the issue of Bakken crude oil safety.

As the point person on this issue for North Dakota, Helms’ opinions carry significant weight. And just like Congressman Cramer, Helms is pointing out the “significant downside” of stabilization, which is that it is an expensive operation.

It is well established that stabilization works and would make oil trains much safer. Not even North Dakota politicians are arguing that point anymore. But the industry doesn’t want to pay for it. And right now, the only ones who could mandate them to stabilize the oil via new regulations are the three members of the Industrial Commission of North Dakota.

What About The Feds’ Oil-By-Rail Regulations?

The reason North Dakota politicians are discussing this issue at all is because the federal government has essentially punted the question.

In the 200 pages of new proposed oil-by-rail regulations released in July, there is not a single line about requiring the oil or rail companies to stabilize the oil prior to shipping.

Stabilization is a process that removes the explosive natural gas liquids from the oil and is required by pipeline companies. This process would turn the current Bakken “bomb trains” into simple oil trains. They would still pose a threat of oil spills, but would no longer threaten to kill people in massive explosions like the one in Lac-Megantic, Quebec, or be a target for terrorism.

While the proposed regulations don’t require stabiliazation, they do include three questions that indicate lawmakers are aware that stabilizing or “degassifying” the crude makes it safer and that producers have the ability to reduce the volatility of crude oil prior to shipping it by rail.

Is the current exception for combustible liquids sufficient to incentivize producers to reduce the volatility of crude oil for continued use of existing tank cars?

Would an exception for all PG III flammable liquids further incentivize producers to reduce the volatility of crude oil prior to transportation?

What are the impacts on the costs and safety benefits of degasifying to these levels?

As previously reported by DeSmogBlog, the regulators in charge of finalizing the new proposed oil-by-rail regulations are big believers in cost-benefit analysis. And looking at their questions, it is clear they know the oil can be made less volatile. But they want to hear more from the industry about the costs of doing this before doing anything. And instead of requiring stabilization, they are looking for ways to “incentivize” the producers to do it.

Oil Conditioning vs. Oil Stabilization

The North Dakota Industrial Commission is holding a hearing on September 23rd during which it is requesting input on how to make the Bakken crude oil safer for transport. The headline of its press release, “Hearing set on oil conditioning practices,” almost ensures that oil stabilization will never be required in North Dakota.

Oil conditioning is not the same as oil stabilization. Oil conditioning can be done with all of the existing equipment already in the field in North Dakota and thus the cost is minimal. However, in situations where the industry needs to ensure it strips out all the volatile natural gas liquids from the oil, as in the Eagle Ford formation in Texas, they use a different process called stabilization.

Helms and the members of the Industrial Commission like to cite the North Dakota Petroleum Council Study on Bakken Crude Properties when claiming that Bakken crude is no different than other crude oils and thus doesn’t require stabilization. However, that very report makes it clear that conditioning, done with the equipment currently available, is insufficient and was never designed to achieve the type of results expected from stabilization.

From the report, prepared by industry consultant Turner and Mason:

The data consistency [sic] indicates that field equipment is limited in its ability to significantly impact vapor pressure and light ends content.

This is consistent with the expected capabilities of the equipment.

The field equipment is designed to separate gas, remove water and break emulsions to prepare crude for transport, and not remove significant levels of dissolved light ends from the crude.

Meanwhile, at the August 26 meeting of the North Dakota Industrial Commission, Helms once again acknowledged the effectiveness of stabilization, as reported by Petroleum News: “This is very routinely done with high gravity condensate — oil that condenses out of a gas well as it is produced,” Helms said. “That has to be stabilized before it can move through the system.”

Helms word choice is telling. Oil that “has to be stabilized before it can move through the system.” Oil that is moved by pipeline has to be stabilized before it can be moved because pipeline companies require it. The rail companies do not.

Despite his acknowledgement of how stabilization is routine in the pipeline business, at the August meeting, Helms was also sure to point out that in North Dakota they expected to choose conditioning as their solution, as reported by Petroleum News.

Helms agreed, saying conditioning is likely more suitable for North Dakota since the equipment is already in place on well sites but he’d like to hear from others at the upcoming hearing.

“We haven’t closed the door to (stabilization),” Helms said. “We want to hear what people have to say.”

However, if the North Dakota Industrial Commission actually wanted to hear what people have to say about stabilization, the press release about the September 23rd hearing probably should have actually mentioned stabilization. It doesn’t.

The North Dakota Industrial Commission

If there is going to be any regulation requiring stabilization of the Bakken crude it will require the three members of the North Dakota Industrial Commission to make it happen.

Governor Jack Dalrymple is one member of the commission. And his point man on this issue, Helms, has already made it clear he supports conditioning over stabilization.

North Dakota Attorney General Wayne Stenehjem is another member. When a report by the Pipeline and Hazardous Safety Materials Administration recently concluded that Bakken oil was more flammable than most other crude oils, Stenehjem responded to the science by saying, “It seems like they are picking on us.”

The third member of the commission is Agricultural Commissioner Doug Goehring. At the August 26th meeting of the commission, Petroleum News reported that Goehring opposed stabilization for an unlikely reason for someone who helped oversee the massive expansion of the Bakken oil production.

Agriculture Commissioner Doug Goehring voiced his concern with dotting the landscape with stabilizer units.

“We’ve been trying hard to shrink that footprint out there on the landscape, and that’s going to make that awfully difficult.”

So in all likelihood, stabilization is off the table and conditioning will be the new regulation. Helms and others often say conditioning is already being done because the equipment is already in the field. Yet, according to the minutes from the July meeting of the Industrial Commission, Governor Dalrymple said: “Right now we are assuming producers are doing conditioning but we do not have a mechanism to verify that.”

So, let’s get this straight. It is more than a year after the explosion of a Bakken crude train in Lac-Megantic that killed 47 people. And it’s been more than eight months since a train of Bakken crude exploded in Casselton, ND. And the best the regulators can do is hold a hearing to talk about how to do regulate a practice that’s inadequate and they already assume is being done?