Repost from onEarth, Natural Resources Defense Council
Whatever Shall We Do with All this Extra Oil?
Oil companies want the crude-export ban lifted. Is that a good idea?
By Brian Palmer | December 13, 2014
If oil industry lobbyists didn’t have so much money, Congress would get pretty sick of them. They’re constantly whining. They don’t like the carbon pollution rules. Fuel-economy standards are too tight. Something about a pipeline from Canada. Today, they’re back on Capitol Hill moaning about the crude-export ban.
What’s that you say? You’ve never even heard of the crude-export ban? Well, now you have, and I’ve compiled a few FAQs for you.
What does the ban say?
The short answer: Crude oil drilled in the United States must be refined in the country. But as with most laws, there are exceptions. Companies can export oil to be refined in Canada as long as the products are sold there or back to the States. Some Alaskan crude has been exported. And a particular kind of heavy crude from California can be sent abroad because presidents George H.W. Bush and Bill Clinton decided it was in the national interest. Such exceptions can be significant: Total exports peaked at 104 million barrels in 1980, representing about 3 percent of total U.S. extraction that year. In recent years, though, that number has fallen below 50 million barrels.
That law’s been around since the 1970s. What’s the big deal now?
Well, we’re talking about an industry in which greed is considered good. Money, of course! Until recently, energy companies weren’t drilling enough oil to make a big splash on the international market. But U.S. production surged by nearly 50 percent between 2008 and 2013, and those CEOs now think they can take home even bigger bonuses if they’re allowed to sell abroad.
Why was it created in the first place?
Basically because the Arab members of the Organization of Petroleum Exporting Countries got mad that the United States and a few other countries were siding with Israel during the 1973 Arab-Israeli War—and cut production and banned petroleum exports to those nations. The price of crude quadrupled, causing a five-month-long oil crisis that majorly disrupted global commerce and American lives. Since then, energy independence has been a goal for every U.S. president; Gerald Ford, for example, signed the 1975 Energy Policy and Conservation Act, which prohibited most crude exports and established a national strategic oil reserve.
Will I pay more for gas either way?
The ban certainly depresses the price of U.S.-produced crude oil, but gas prices involve a lot of factors. Energy analysts and industry advocates have debated the ban’s effects for years. So, in an attempt to settle the argument, the somewhat more impartial U.S. Energy Information Administration recently published a report on what would happen to gas prices if exports were allowed. You can read it here if you’re an oil-price wonk. Here’s the short version, from the organization’s administrator, Adam Sieminski: “[I]t probably wouldn’t do a great deal one way or the other with gasoline prices.”
Apparently, when it comes to economics, the controversy has more to do with profits than your family budget.
What would it mean for the climate if we allowed the exports?
It might be bad news. In an era of high domestic production, the ban holds down the price of West Texas Intermediate, North America’s benchmark crude, which then keeps Canada’s tar sands crude prices low. (The price points of the two crudes move roughly in sync.) So if Congress lifts the ban, the tar sands industry, which is currently in a major funk, could be saved—and this would mean a lot more extraction of the most carbon-intensive fossil fuel source around.
That’s the theory. And a March study from Oil Change International supports it: The report concluded that allowing exports would result in added carbon emissions equivalent to the output of 42 coal plants. The factors influencing global oil prices are complex, though, so it’s difficult to say exactly how much fossil fuel the crude-export ban is keeping in the ground.
The lack of certainty, however, makes its own point. Before Congress even considers repealing a 39-year-old law dealing directly with fossil fuels, it ought to understand the implications for climate change. It’s appalling that politicians would consider lifting the ban without full information. But I guess they’re not scientists.
Repost from PRI’s Living On Earth, Environmental News Magazine [Editor: An important interview. See full transcript below and good links below the transcript. Click here for audio. – RS]
Oil Train Safety Off Track
Steve Curwood, Air Date: Week of March 20, 2015
Five oil train derailments in five weeks–some with dangerous fiery consequences. (Photo: Wikimedia Commons)
In the past five weeks, there have been 5 oil train derailments resulting in large fireballs, and more oil was spilled in 2014 than in the last 38 years combined. Steve Kretzmann, Director and Founder of Oil Change International, and Sarah Feinberg, Acting Administrator of the Federal Railroad Administration, discuss rail safety with host Steve Curwood and offer different solutions to this multifaceted problem.
Transcript
CURWOOD: From the Jennifer and Ted Stanley Studios in Boston and PRI, this is Living on Earth. I’m Steve Curwood. At 12 million barrels a day, the US is the world’s leading oil producer, with much of the boost due to fracking technology. With pipelines at capacity the boom has led a 4,000 percent increase in the volume of crude oil that travels by rail, and that brought more accidents and more oil spills in 2014 than over the previous 38 years. Just these past five weeks brought five more derailments, with huge fires and polluted waterways, and some critics say new rail safety rules on the drawing boards won’t go far enough to protect the public or the environment. Steve Kretzmann is Executive Director and Founder of Oil Change International. Welcome to Living on Earth, Steve.
KRETZMANN: Thanks so much for having me here, Steve. It’s great to be back.
CURWOOD: Now, what we are seeing is a lot of crashes and explosions. What’s happening?
KRETZMANN: So we’re seeing, unfortunately, a very visible result of the ‘all of above’ energy policy, playing out with great risks to our communities around North America on a whole. The Bakken oil is very light oil, and it’s very explosive, it turns out, and people have known this, but it hasn’t really stopped them from shipping it via rail. And it’s also worth noting that because that oil is light oil, that’s mixed in with tar sands to form diluted bitumen, which is usually the way tar sands get to market, we’re also seeing tar sands trains now explode, and so they’re just trying to get as much out as fast as they can and maximize their profit. And as we know, the oil market is flooded with crude now and effectively we’re subsidizing that with our safety in our communities and our lives.
CURWOOD: Now, in Texas where there’s a fair amount of fracking for oil, there are machines that remove the most volatile portion, the most explosive part of fracked oil before it is shipped, but in North Dakota it is not. Why this discrepancy? Why don’t they make this safety precaution in North Dakota?
KRETZMANN: Well, it’s about profit, it’s about investment and infrastructure by the industry, so the production in Texas is very close to markets and so when they invest in the infrastructure to remove the lighter petroleum product – natural gas among other things – they can then sell that oil because they can put in the pipelines. On the other hand, North Dakota does not have those gas pipelines and the infrastructure is not there to capture it and so their options are burn it or try to force it into the tank car, which is what they’re doing. There are new regulations that are supposed to take effect from North Dakota that will reduce the amount that they can squeeze in there on a regular basis, but it’s not clear that the regulation is in line with what will actually create a safe car. It’s just slightly less than they’ve been able to get away with.
Older DOT 111 cars usually do not fair well in crashes, even at low speeds. (Photo: Robert Taylor; Flickr Wikimedia Commons CC BY 2.0)
CURWOOD: Talk to me about the new tanker safety rules and how effective they might be in preventing the kind of explosions we’ve seen on oil train derailments.
KRETZMANN: So it’s not clear what the new rules are going to be. There are the North Dakota rules which are a slight reduction in vapor pressure, and then there are the federal rules, which are under consideration by the Obama administration, and we’re going to see another draft of those supposedly within the next month. But there are very different options that they can take. They could build thicker-walled oiled trains, they could require that, but the oil industry doesn’t like that because it costs them more money. They could install electronically controlled pneumatic brakes on the railcars, but the rail industry doesn’t like that because it costs them too much money. One of the most effective things they could do is introduce a very serious speed limit. The DOT 111s, the old cars, still make up the majority of the crude by rail fleet; they’ve been shown to explode at seven miles an hour. The 1232s, which are the newer supposedly safer cars, but are the ones that have been involved in each one of these accidents recently, have been shown to explode at 15 miles an hour. So, we say you should put in serious restrictions here: all new cars, speed limits at 15 or below, particularly in populated areas. You know the industry gets very upset about that and says, “oh my God, that would mean we would have to stop production”. And you know, the point is “yes”, maybe actually reducing some production in the name of public safety is worth it here.
Steve Kretzmann is the Founder and Executive Director of Oil Change International. (Photo: courtesy of Mr. Kretzmann)
CURWOOD: So you mentioned that communities are at risk from these crude oil trains. What ones come to mind for you?
KRETZMANN: So when you look at the map of where crude oil trains are going around the United States, it’s very clear you start looking at the routes: Minneapolis, Chicago, St. Louis, New York, Philadelphia, Cleveland, Detroit. All these cities have crude by rail trains, these bomb trains running right through them. 25 million Americans live within the blast zone here and it’s sadly not a question of if but when one of these explosions is going to result in a tremendous tragedy. We have the opportunity to slow this down and put a moratorium in place before this happens and we should take it.
CURWOOD: That was Steve Kretzmann of Oil Change International. Well, a moratorium on oil transport by rail is unlikely, and the Obama Administration has yet to issue new rules, even after two years of work. So in the face of the recent accidents it’s issued some emergency rules and here to explain is Sarah Feinberg the Acting Administrator for the Federal Railroad Administration. Welcome to the program.
FEINBERG: Thank you for having me.
CURWOOD: So what do you have in place now in terms of emergency regulations then, emergency rules?
FEINBERG: Well, we have a lot. We have a requirement of railroads to share information about the product that’s being transported with emergency responders in each state. We have an emergency order that’s in place regarding testing and making sure that the right tank car and right packaging is being used for each product. Over the course of a year and a half that I’ve worked on this issue, we were enforcing against violations for not testing the product properly, not packing it in the right container, not handling it the right way, not sharing information about it. I’m not saying things are in a good place now, they certainly aren’t. We’ve got a long way to go, but when I think back to where we were a year and a half ago, it’s amazing to me we’re actually having a conversation about testing then.
A DOT-111 tank car with an insulating jacket and external heating coils can hold 20,000 gallons of crude. (Photo: National Transportation Safety Board; Wikimedia Commons)
CURWOOD: Now, not long ago there was a dramatic explosive derailment in West Virginia that involved the new kinds of cars, the supposedly safer cars, and some folks are saying that apparently having those cars aren’t safe enough. What you say?
FEINBERG: Well, it’s really important to understand the different kinds of cars that are out there. The one we hear about a lot is the DOT 111. That is the older tank car; I think everyone agrees across the board that tank car is certainly outdated. It’s not safe enough to hold this product or others. Industry on its own a few years ago came up with their own version of a tank car that’s called the 1232. While it is a better tank car, and it’s a newer version of a tank car, one person on my team once referred to the 1232 as the .111 with a five-mile per hour bumper on it. So it’s a Pinto with a better bumper instead of just a Pinto. The other most important thing to think about is that all 1232s are not the same. They didn’t have all the safety components that they could have had. They didn’t have a jacket; they didn’t have a thermal shield. These are important components to keep a tank car from basically experiencing the thermal events that create fireballs.
CURWOOD: No matter what kind of car it is, they’re going off the rails. Some folks say that the trains are just simply traveling too fast.
FEINBERG: Look, I mean speed should be a factor, but the reality of is that in all of these derailments, they’ve been very low speed. In fact, the agreements that we have in place with the railroads limit speed at 40 miles an hour. We’re now in a position where we’ve got railroads functioning below the maximum speed and we are still running into problems. There is not a tank car at this moment or even the new version of the tank car we’ve proposed that will survive a derailment above, say, 16 or 18 miles an hour. So that’s one of the reasons why this issue is so complicated. There is literally not a silver bullet. It’s not speed, it’s not a particular tank car, its not the way the train is operated. It’s all of the above and it needs to include, frankly, the product itself that’s being placed in the transport, the product that’s leaving the Bakken and heading to the refinery.
CURWOOD: How safe is it to allow such volatile fuel to be transported on rails?
Sarah Feinberg is the Acting Administrator of the Federal Railroad Administration. (Photo: FRA)
FEINBERG: I mean, if I have to be honest, I would prefer that none of this stuff be traveling by rail. I worry a lot about not just the folks who are working on the train and the passengers on the Amtrak that the train is going by, but I worry a lot about the people living in the towns and working in the towns that these trains are going through. Now, we have some routing protocols in place. There is a whole software system that the railroads use when they are trying to determine the right route for a substance like this, so it looks at things like city size, it looks at possible defects on rail, it looks at weather, it looks at speed, it looks at traffic, it looks at all of those factors and it basically spits out the best route for you to take.
CURWOOD: Industry a few days ago went over to the Office of Management and Budget, the folks who review the rule-making there inside of the OMB, and made a lot of complaints about the proposal to have this updated form of braking, they say it won’t have more significant safety benefits, it won’t have much in the way of business benefits and be extremely costly. Sounds like industry is pushing back against getting this stuff under control. Your take?
FEINBERG: Yeah, sure. And I expect that. Look, OMB meets with industry, yet the FRA is required to meet with all interested parties as well. So, as many meetings as I did with industry, I think we all did with the environmental community, small-town mayors, governors and interested members of Congress. So there are a whole lot of folks with a dog in this fight and they all want to talk to the regulator and they all want to talk to the Office of Management and Budget to affect the outcome of the rule. I think at the end of the day it’s OMB’s job and it’s FRA’s job to come up with the best possible rule that we can that will actually address the challenge. To be clear, that’s not an easy thing to do right now. It’s a bit amazing at this point you can take a common sense safety measure and watch the amount of time that it can actually take to turn into a regulation, but you know that’s my frustration, that’s our problem and our issue to deal with, and the main thing is we should just be keeping people safe.
CURWOOD: Sarah Feinberg is the Acting Administrator for the Federal Railroad Administration. Thanks so much for taking the time today.
FEINBERG: Thanks for having me.
CURWOOD: We asked the Association of American Railroads for comment on the proposed new regulations.
Spokesman Ed Greenberg’s reply is posted in full at our website, LOE.org.
It reads, in part: “America’s rail industry believes final regulations on new tank car standards by the federal government would provide certainty for the freight rail industry and shippers and chart a new course in the safe movement of crude oil by rail.”
Coming up…the power of labor allied with environmental activists. Stay tuned to Living on Earth.
The Association of American Railroads comment:
“The safety of the nation’s 140,000-mile system is a priority of every railroad that moves the country’s economy and the freight rail industry shares the public’s concern over recent high-profile incidents involving crude oil. This is a complex issue and a shared responsibility with freight railroads and oil shippers, which are responsible for properly classifying tank car contents, working together at further advancing the safe movement of this product.
The fact is, safety is built into every aspect of the freight rail industry, it is embedded through-out train operations and a 24/7 focus for thousands of men & women railroaders. Billions of private dollars are spent on maintaining and modernizing the freight rail system in this country. Since 1980, $575 billion has been spent on safety enhancing rail infrastructure and equipment with another $29 billion, or $80 million a day, planned for 2015.
Railroads have done top-to-bottom operational reviews and voluntarily took a number of steps to further improve the safety of moving crude oil by rail. Actions have included implementing lower speeds, increasing track inspections and track-side safety technology, as well as stepping up outreach and training for first responders in communities along America’s rail network.
Federal statistics show rail safety has dramatically improved over the last several decades with 2014 being the safest year in the history of the rail industry. More than 2 million trains move across our country every year hauling everything Americans want in their personal and business lives with 99.995 percent of cars containing crude oil arriving safely. That said, the freight rail industry recognizes more has to be done to make rail transportation even safer.
Freight railroads do not own or manufacture the tank cars carrying crude oil. Still, the freight rail system has long advocated for tougher federal tank car rules and believe that every tank car moving crude oil today should be phased out or built to a higher standard. We support an aggressive tank car retrofit or replacement program.
America’s rail industry believes final regulations on new tank car standards by the federal government would provide certainty for the freight rail industry and shippers and chart a new course in the safe movement of crude oil by rail.”
Repost from NRDC Switchboard, Anthony Swift’s Blog [Editor: Normally, I only post current news and views. This October 2014 post by the NRDC’s Anthony Swift gives an interesting contextual background to recent disclosures of the volatile nature of tar-sands diluted bitumen (dilbit). Even before the dilbit trains began derailing and exploding, the outlook for tar-sands crude-by-rail was poor. See also the link to the September 2014 OCI report, “Wrong Side of the Tracks.” – RS]
The tar sands train that couldn’t
By Anthony Swift, October 21, 2014
News from Canexus today indicates that it is only getting worse for the Bruderheim terminal. A major customer has terminated its contract. Now only 40% of capacity is under contract. But not even that is being used. Last week, the 100,000 bpd capacity terminal loaded only 13,200 bpd.
The issue of whether significant quantities of tar sands crude will move by rail if projects such as the Keystone XL tar sands pipeline are not built is a major part of the ongoing debate about tar sands expansion. The assertion that rail is a viable alternative to pipelines to the Gulf Coast is important for tar sands proponents because any claim that Keystone XL passes the President’s climate test rests on the weak argument that carbon intensive tar sands crude will be developed at the same rate with or without the massive pipeline.
This is the first in a series of blogs discussing and building upon the evidence presented in the Oil Change International report ‘Wrong Side of the Tracks’. The report details the challenges the Canadian tar sands industry faces in getting its dirty product to market via rail in the face of ongoing pipeline delays caused by rising public opposition to tar sands production and related pipelines.
In today’s blog we look at the ongoing underperformance of the first unit train loading terminal in Alberta with access to tar sands crude. It is a tale of budget overruns, missed targets and operational failures.
Many observers hailed the beginning of unit train shipping for tar sands crude as a new era in which tar sands producers could use North America’s existing rail network to circumvent opposition by environmentalists and indigenous communities. But almost one year after the first tar sands unit train facility was completed, tar sands unit trains are limping along and the rush of tar sands crude they are supposed to deliver is yet to materialize. Far from proving the economic viability of tar sands by rail, the first companies to experiment in this sector have encountered operational issues, high costs and low returns.
The crude-by-rail boom started in North Dakota, where producers demonstrated the economic feasibility of shipping light crude by rail via unit trains. Unit trains are loaded as a single unit, generally of between 80 and 120 cars, delivering their cargo to a single destination with lower costs than having a train carrying a variety of freight cars pick up and deliver those cars via various switching yards. By 2013, North Dakota’s oil producers had built fifteen crude-by-rail terminals with over one million barrels per day (bpd) of capacity.
By comparison, the tar sands industry had been very slow to adopt crude-by-rail. However, in the face of severe pipeline bottlenecks and delays, companies began looking for ways to replicate the crude-by-rail boom in North Dakota and ship diluted bitumen (dilbit) by unit train.
In mid-December 2013, a little known company – Canexus Corp. – got ahead of the game by opening the first unit train terminal with access to tar sands crude in Bruderheim (near Edmonton), Alberta.
The week the terminal began loading its first train vice president Jamie Urquhart told Platts Commodity News, “our aim will be to transport about 62,400 barrels per day diluted bitumen during the first phase and increasing to 98,100 bpd by July 2014 through increasing the number of trains to 11 a week”. In its environmental review of the Keystone XL pipeline, the State Department claimed that Canexus had contracts to ship 150,000 bpd of diluted bitumen and used the company’s estimates to support the low end of the Department’s estimate of the cost of tar sands by rail (see Section 1.4 pages 85 and 102).
Since then, the terminal has faced dramatic cost overruns and has operated at only a small fraction of its capacity. Construction ran 60 percent over budget jumping to CAD$360 million. Only 60 percent of capacity is under contract – less than half of the volume assumed by the State Department. Even then the project has yet to operate at even 50 percent of designed capacity.
From December to late June, loading averaged a little over 19,000 barrels per day, around 30 percent of the figure touted by Urquhart, and the highest ever weekly recorded rate was 31,000 bpd.[1] By July, which was when the company had predicted it would be raising throughput to nearly 100,000 bpd, the terminal was shut down for a three-month overhaul. Average loadings since it restarted in September are at a paltry 9,000 bpd compared to the facility’s maximum 100,000 bpd capacity.
In addition to overhauling malfunctioning equipment, another reason that Bruderheim shut down was to connect it to a pipeline coming from the Cold Lake tar sands region. The pipeline is part owned by tar sands producer MEG Energy. MEG Energy signed a deal with Canexus to ship its dilbit by rail from the Bruderheim terminal. However in August, when Canexus attempted to connect to MEG’s pipeline as it prepared to restart the rail terminal, MEG refused access. Canexus took MEG to court claiming it was violating contractual commitments and the connection went ahead in early September
The question of why MEG initially refused permission for Canexus to connect to its pipe remains a mystery. Could it be that MEG is getting cold feet over sending tar sands by rail? Given that throughout 2014, traders have reported that shipping tar sands to the Gulf Coast by rail is unprofitable because low prevailing oil prices do not cover the high costs of rail, this would not be surprising. The ruinous economics of shipping tar sands by rail to the Gulf Coast is described in the Oil Change report Wrong Side of the Tracks and will be the subject of a future blog in this series.
What is clear is that far from proving the feasibility of tar sands by rail as an alternative to pipelines, the company pioneering this activity has proven it to be a highly risky business. Canexus’s share price is down nearly 50 percent since the beginning of the year, it has cut dividends and replaced its CEO. It is also considering selling Bruderheim in order to revive its balance sheet and support its other core businesses.
It remains to be seen whether Bruderheim will be able to ramp up loadings to anywhere near the touted figures of 60,000 to 90,000 bpd or 10 to 14 trains a week. Thus far it has only rarely loaded a single full unit train per week.
Whatever the reason for MEG’s action against Canexus, it is clear that the tar sands industry’s first foray into large scale crude-by-rail has gotten off to a shaky start. It stands in stark contrast to the bubbling optimism for the trade projected in the Department of State’s analysis of the Keystone XL pipeline, which concluded that shipping tar sands by rail would be a viable alternative to the pipeline and therefore not permitting the pipeline would not achieve any net environmental benefits.
The experience so far at Bruderheim clearly contradicts that conclusion.
[1] Figures from Genscape Petrorail Report, a subscription only publication that monitors activity at various North American crude-by-rail terminal including Bruderheim. Figures are reported weekly so weekly totals are averaged to barrels per day.
By John Vidal Monday 10 November 2014
The fossil fuel bailout – G20 subsidies for oil, gas and coal exploration
Rich countries are subsidising oil, gas and coal companies by about $88bn (£55.4bn) a year to explore for new reserves, despite evidence that most fossil fuels must be left in the ground if the world is to avoid dangerous climate change.
The most detailed breakdown yet of global fossil fuel subsidies has found that the US government provided companies with $5.2bn for fossil fuel exploration in 2013, Australia spent $3.5bn, Russia $2.4bn and the UK $1.2bn. Most of the support was in the form of tax breaks for exploration in deep offshore fields.
The public money went to major multinationals as well as smaller ones who specialise in exploratory work, according to British thinktank the Overseas Development Institute (ODI) and Washington-based analysts Oil Change International.
Britain, says their report, proved to be one of the most generous countries. In the five year period to 2014 it gave tax breaks totalling over $4.5bn to French, US, Middle Eastern and north American companies to explore the North Sea for fast-declining oil and gas reserves. A breakdown of that figure showed over $1.2bn of British money went to two French companies, GDF-Suez and Total, $450m went to five US companies including Chevron, and $992m to five British companies.
Britain also spent public funds for foreign companies to explore in Azerbaijan, Brazil, Ghana, Guinea, India and Indonesia, as well as Russia, Uganda and Qatar, according to the report’s data, which is drawn from the OECD, government documents, company reports and institutions.
Oil and gas exploration expenditure in G20 countries (public and private). Photograph: ODI/Rystad Energy
The figures, published ahead of this week’s G20 summit in Brisbane, Australia, contains the first detailed breakdown of global fossil fuel exploration subsidies. It shows an extraordinary “merry-go-round” of countries supporting each others’ companies. The US spends $1.4bn a year for exploration in Columbia, Nigeria and Russia, while Russia is subsidising exploration in Venezuela and China, which in turn supports companies exploring Canada, Brazil and Mexico.
“The evidence points to a publicly financed bail-out for carbon-intensive companies, and support for uneconomic investments that could drive the planet far beyond the internationally agreed target of limiting global temperature increases to no more than 2C,” say the report’s authors.
“This is real money which could be put into schools or hospitals. It is simply not economic to invest like this. This is the insanity of the situation. They are diverting investment from economic low-carbon alternatives such as solar, wind and hydro-power and they are undermining the prospects for an ambitious UN climate deal in 2015,” said Kevin Watkins, director of the ODI.
The report is important because it shows how reforming fossil fuel subsidies is a critical issue for climate change.
The report further criticises the G20 countries for providing over $520m a year of indirect exploration subsidies via the World Bank group and other multilateral development banks (MDBs) to which they contribute funds.
The authors expressed surprise that about four times as much money was spent on fossil fuel exploration as on renewable energy development.
“In parallel with the rising costs of fossil-fuel exploration and production, the costs of renewable-energy technologies continue to fall rapidly, and the speed of growth in installed capacity of renewables has outperformed predictions since 2000,” said the report.
