Crude oil joins rail industry staples as key revenue producer
By Jarrett Renshaw, Mar 16, 2015 2:05pm EDT
(Reuters) – U.S. railroads generated almost as much money last year hauling crude oil and sand, largely used in hydraulic fracturing, as they did moving industry staples like field crops and motor vehicles, according to a Reuters’ analysis of newly released federal data.
The previously unreported company data submitted to the U.S. Department of Transportation provides the latest piece of evidence of the blossoming marriage between the energy and rail industries, forged on the back of the U.S. shale oil boom.
Led by Berkshire Hathaway-owned BNSF Railways, the seven largest railroads operating in the United States generated $2.8 billion in gross revenue from hauling crude oil in 2014, up nearly 30 percent from 2013, according to company data filed with the federal government and released earlier this month.
The $2.8 billion figure puts crude oil in sixth place among similarly classified products, trailing industry standards like coal, field crops and motor vehicles, the analysis shows. Sand and gravel, an often overlooked winner in the shale boom, generated $2.7 billion last year in gross revenue.
Crude oil provides the biggest return on a per-carload basis, drawing $5,700 in gross revenue for each car that originated on the network, more than double than what coal brings.
The continuing financial success comes as the industry faces threats from a massive drop in oil prices and impending new U.S. regulations aimed at public safety that could impose additional costs.
“Will the major carriers go belly up? No,” said Barton Jennings, a professor of supply chain management at Western Illinois University. However, short-line cariers that rely upon crude for the bulk of their business may be exposed, he said.
Overall, the seven major carriers reported U.S. profits of $14.4 billion last year, led by Union Pacific and BNSF, which combined accounted for 67 percent of the industry’s U.S. profits, the analysis shows.
KING CRUDE
The biggest player in the U.S. crude rail business is BNSF, which dominates North Dakota, home to the Bakken shale.
BNSF’s gross revenue from crude oil rose to $1.48 billion from $63 million in 2010. Gross revenue from hauling sand and gravel climbed to $651 million last year, a more than 300 percent jump from 2010.
The growth in crude and sand hauling helped BNSF boost profits, which climbed from $2.6 billion in 2010 to $4.4 billion last year.
(Reporting By Jarrett Renshaw; Editing by Jessica Resnick-Ault and Jonathan Oatis)
More oil-train fixes: Feds order defective valves replaced on leaking cars
By Samantha Wohlfeil and Curtis Tate, March 13, 2015
Derailed oil tanker train cars burn near Mount Carbon, W.Va., Monday, Feb. 16, 2015. A CSX train carrying more than 100 tankers of crude oil derailed in a snowstorm, sending a fireball into the sky and threatening the water supply of nearby residents, authorities and residents said Tuesday. MARCUS CONSTANTINO — AP
WASHINGTON — The Federal Railroad Administration on Friday ordered rail tank car owners to replace defective valves never approved for installation on thousands of tank cars, causing oil to spill from moving trains.
The directive applies to a 3-inch valve installed on roughly 6,000 tank cars, and their owners have 60 days to replace them. Within 90 days, tank car owners must also replace 37,000 1-inch and 2-inch valves manufactured by the same company. While the smaller valves were not found to be defective like the larger ones, they were not approved for the tank cars.
The affected cars can be used in the interim, but none can be loaded with hazardous materials if they are still equipped with those valves after the deadlines.
The enforcement action comes after a story last month in McClatchy’s Bellingham Herald about 14 tank cars that were discovered leaking en route from North Dakota’s Bakken region to the Tesoro refinery in Anacortes, Wash.
Friday’s enforcement action is the second to follow an investigation launched after McClatchy reported on leaking cars in Washington.
On Thursday, the agency said it had sanctioned the operator of a North Dakota loading facility for not properly closing a valve on another oil car after McClatchy reported in January that the car arrived at the BP Cherry Point refinery in northwest Washington state with 1,600 gallons missing.
The 1-inch, 2-inch and 3-inch valves were all manufactured and sold by McKenzie Valve and Machining, a company in Tennessee. The Bellingham Herald could not immediately reach anyone at McKenzie, but left messages with the company Friday.
The Federal Railroad Administration also announced Friday that it was launching a full audit of the approval process for tank car components to determine why the unapproved valves were installed.
The Federal Railroad Administration said it would begin working immediately with the association, which is the rail industry’s principal trade group in the nation’s capital.
Sarah Feinberg, the FRA’s acting chief, said Friday that removal of the valves will help reduce the number of non-derailment releases of hazardous materials.
“Any type of hazardous materials release, no matter how small, is completely unacceptable,” she said in a statement.
Ed Greenberg, a spokesman for the railroad association, said Friday that it supported the order. Railroads don’t own most of the tank cars used to transport oil.
“Officials from our association will be working closely with the administration in reviewing the tank car valve approval process to ensure the agency is fully satisfied with the current approval requirements that are in place,” he said in a statement.
The Federal Railroad Administration’s order came about a month after crews discovered tank cars leaking oil from their top fittings on a handful of trains hauling different types of crude oil through Washington state.
In mid-January, a train loaded with Bakken crude needed to have more than a dozen leaking cars removed at three separate stops as it traveled through Idaho and crossed Washington state.
The train was headed from Tioga, N.D., to the Tesoro refinery in Anacortes.
In a report to the U.S. Department of Transportation, BNSF reported a total of 26 gallons of oil leaking from 14 cars. Tesoro reported two more leaking cars. The oil was found only on the tops and sides of tank cars, and no oil was found on the ground.
Crews had first noticed oil on the side of a tank car while the train was in northern Idaho, and after checking the rest of the train, removed that car, which had leaked about two gallons, according to BNSF spokeswoman Courtney Wallace.
After the train had crossed through the state, following the Columbia River to Vancouver, Wash., crews found that crude oil had leaked onto the top of seven more cars, which were removed from the train on Jan. 12. BNSF reported the incident to the state Department of Ecology on Jan. 23.
BNSF also reported that about 10 gallons total had leaked from six more cars removed in Auburn on Jan. 13.
Wallace said the railroad would work with customers and shippers to take the required actions.
“Although BNSF does not own the tank cars, nothing is more important to us than safely operating through the communities that we serve,” she said in a statement.
The state Utilities and Transportation Commission and the FRA investigated the cars that were pulled from the train in Vancouver, which led to the discovery that closure plugs on the valves caused damage to the valve’s seal, and when tightened, would press down on and damage the ball.
The cars involved were CPC-1232 model cars built after 2011, which some oil companies have started using after several fiery derailments caused concerns about older DOT-111 rail cars, which have been found more likely to puncture or burst.
However, newer CPC-1232-standard cars that lack features that reduce damage from punctures and fire exposure have performed no better in four recent oil train derailments in West Virginia, Illinois and Ontario.
The White House Office of Management and budget is reviewing a new tank car standard proposed by the Department of Transportation. It is scheduled for publication on May 12.
Wohlfeil, of The Bellingham Herald, reported from Washington state. Tate reported from Washington, D.C.
By Roll Call Staff, March 13, 2015 9:55 a.m.
Sen. Heidi Heitkamp, D-N.D., center, is urging OIRA to “quickly finalize” regulations on rail shipment of crude oil. (Photo By Bill Clark/CQ Roll Call)
“Oh Ira, why can’t you work more quickly?” That might’ve been what tunesmith George Gershwin said to his lyric-writing brother Ira Gershwin. But for transportation purposes, it’s essentially what Sen. Heidi Heitkamp, D- N.D., said Thursday to OIRA – pronounced “oh-Ira” – the Office of Information and Regulatory Affairs, within the Office of Management and Budget.
OIRA is where proposed regulations go for a final vetting and it now has under review a series of proposed rules on more robust oil tank cars and safer transport of crude oil.
In a letter to OMB director Shaun Donovan, Heitkamp urged OIRA to “quickly finalize” the regulations so that shippers and first responders can know what they must do to more safely ship crude oil. Much of that oil comes from the Bakken formation in Heitkamp’s state and in Montana and is carried by rail to refineries on the East Coast and the West Coast.
She cited the December 2013 derailment, explosion and fire in Casselton, N.D., noting that while no one was killed in that incident “we were lucky… but we cannot depend on luck.”
Meanwhile House Transportation and Infrastructure Committee ranking member Peter A. DeFazio, D- Ore., has asked the Government Accountability Office to report to him on what railroads and the federal government are doing to prepare for an oil train derailment and fire “particularly in the most remote and environmentally sensitive areas”
DeFazio specifically asked the GAO to examine what the railroads are doing to preposition “critical resources necessary to respond to spills in both urban and rural areas, including forest lands, with limited road access, prone to catastrophic fire, or at-risk due to long-term drought” and to preposition “critical resources to contain and clean-up oil spills into rivers or other water bodies.”
As the Oregonian reported last year, “Eighteen oil trains a week move along the Washington side of the Columbia River Gorge.” Part of the gorge is a national scenic area and it borders national forests.
Crude oil train shipments dwindle in California, for now
By Tony Bizjak, 03/11/2015 9:47 PM
A BNSF train carries Bakken crude oil in the hills outside the Feather River Canyon last June. Jake Miille / Special to The Bee
A year ago, California officials nervously braced for an influx of milelong trains carrying volatile crude oil to refineries in the Valley and on the coast – trains similar to the one that exploded two years ago in Canada, killing 47 people.
The trains never arrived. Although tank cars full of oil now roll daily through cities in the Midwest and East, provoking fears of crashes and fires, the number of oil trains entering California has remained surprisingly low, state safety regulators say, no more than a handful a month. In recent weeks, they appear to have dwindled to almost nothing.
The reasons appear to be mainly economic.
“Crude oil shipments from out of state have virtually stopped,” said Paul King, rail safety chief at the California Public Utilities Commission. “Our information is that no crude oil trains are expected for the rest of this month.”
Most notably, the BNSF Railway recently stopped running a 100-car train of volatile oil from the Bakken region of North Dakota through the Feather River Canyon and midtown Sacramento to the Bay Area. The trains, several a month, carried an estimated 3 million gallons of fuel each.
Bakken oil, a lighter type of crude, similar to gasoline, has gained a fearsome reputation since it entered the national scene a few years ago. A string of Bakken train explosions around the country prompted the federal government to issue a warning last year about the oil’s unusual volatility and launch efforts to write stiffer regulations on rail transport, including a proposal to require sturdier tank cars for oil.
Two more Bakken train derailments and explosive fires recently in West Virginia and Illinois triggered a new round of complaints that the federal government is dragging its heels in finalizing those regulations.
The BNSF train through Sacramento was believed to be the only train in California carrying 100 cars of Bakken oil. PUC rail safety deputy director King said his commission’s rail monitors have been told by owners of a Richmond oil transfer station in the Bay Area that refiners stopped the shipments in November as global oil prices dropped.
California Energy Commission fuels specialist Gordon Schremp said lower prices for other types of oil have made Bakken marginally less marketable in California, although that could easily change in the future.
Other projects, like a Valero Refining Co. plan to run two 50-car oil trains daily through Sacramento beginning this spring to its Benicia plant, have not yet gotten off the ground, in part because of political opposition. Under pressure from state officials, including Attorney General Kamala Harris, Benicia recently announced it is redoing part of its environmental and risk analysis of the Valero rail project. Valero has said it intends to ship lighter fuels, but has declined to say whether those will be Bakken.
State safety officials said the slowdown provides a bit more time to provide hazardous-materials training for more firefighters, as well as to put together a state rail-bridge inspection program and to upgrade disaster and waterway spill preparedness. But state officials said they still feel like they’re playing catch-up as they prepare for existing and future potential rail hazards.
“This apparent reprieve may seem helpful, but we still have substantial amounts of … hazardous materials traveling across California’s rail lines,” said Kelly Huston, deputy director of the state Office of Emergency Services. “It only takes one train to create a major disaster.”
Oil prices have begun rising again, and state officials say they expect Bakken shipments to Richmond and potentially elsewhere to be back on track at some point. “We don’t have any concrete info about when it will resume,” the PUC’s King said. “When prices come up, it is likely to resume, and that could be in months.”
Federal emergency rules require railroads to report to states when they run trains carrying more than 1 million gallons of Bakken crude, and then again when that amount changes by 25 percent or more. BNSF sent the state Office of Emergency Services a brief notice on Wednesday acknowledging it had not shipped more than 1 million gallons of Bakken on any train in the last week. The notice does not say how long ago the shipments stopped or when they may resume.
BNSF officials have contended in letters to the state that shipping information is proprietary and should be kept secret. A BNSF spokeswoman declined this week to discuss shipments with The Sacramento Bee, writing in an email, “Information regarding hazardous material shipments is only provided to emergency responders.”
King of the PUC said his monitors estimate that eight or more non-Bakken crude oil trains had been entering the state monthly from Canadian and Colorado oil fields recently, headed to refineries or transfer stations. The Canadian oil, called tar sands, is not considered as explosive as Bakken, but two tar-sands trains derailed and exploded in recent weeks in Ontario, creating fires that lasted several days.
The national concern about crude oil rail shipments follows a boom in domestic oil production, notably in North Dakota, where hydraulic-fracturing advances have freed up immense deposits of shale oil. Lacking pipeline access, North Dakota companies have turned to trains to ship the oil mainly to East and Gulf Coast refineries and to Washington state. Crude by rail shipments in the United States skyrocketed from 9,500 carloads in 2008 to 436,000 in 2013, according to congressional data.
California continues to produce a sizable amount of its own oil in Kern County and receives marine shipments from Alaska and foreign sources. Still, a recent state energy-needs analysis estimates the state could receive as much as 23 percent of its oil via train or barge from continental sources, including North Dakota, Canada, Texas and other Western states, in the coming years. That estimate is based on plans by refineries in Benicia, San Luis Obispo and Kern County to build rail facilities that can accommodate large crude transports.
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