Category Archives: Federal Regulation (U.S.)

Crude Oil: Follow the Money

Repost from The New York Times Business/Energy

Conflict in Oil Industry, Awash in Crude

By CLIFFORD KRAUSS

caption="Workers drilling for oil outside Watford City, N.D. New production techniques have created a glut of crude oil in the United States." data-mediaviewer-credit="Andrew Burton/Getty Images" />Workers drilling for oil outside Watford City, N.D. New production techniques have created a glut of crude oil in the United States. Andrew Burton/Getty Images
caption=”Workers drilling for oil outside Watford City, N.D. New production techniques have created a glut of crude oil in the United States.” data-mediaviewer-credit=”Andrew Burton/Getty Images” />Workers drilling for oil outside Watford City, N.D. New production techniques have created a glut of crude oil in the United States. Andrew Burton/Getty Images

HOUSTON — T. Boone Pickens has personified the nation’s oil industry for more than a generation. So when he made an offhand comment at a conference here a few weeks ago expressing reservations about lifting the nation’s ban on exports of crude oil, he startled some of his old allies in the business.

 

Scott Sheffield, chief executive of Pioneer Natural Resources and one of the top oil executives in the state, picked up the phone to have a chat. “We had lunch and he made sense,” said Mr. Pickens, who has since revised his position.

 

Chalk one up for the oil producers, who have begun lobbying the Obama administration, Congress and the public to let them export the bounty of crude oil flowing out of new shale fields across the country.

 

Opposing them are their erstwhile cousins, the independent refiners, who insist that they need abundant, economical domestic supplies of oil so they can compete with foreign refiners.

 

It is a rare clash in a deeply guarded industry that involves arguments over national security, pricing at the pump and, after all is said and done, who will get a bigger share of earnings from the current drilling rush.

 

“What we have here is a food fight for the profits that will come either from exports of crude oil or exports of refined products,” said Amy Myers Jaffe, executive director of energy and sustainability at the University of California, Davis, who testified before Congress recently in favor of lifting the ban. “It’s like an argument inside a family business but one that could result in huge market distortions that can either hurt the consumer or our national security.”

 

Producers like Mr. Sheffield warn that a mounting glut of certain grades of oil in some regions of the country will eventually force a halt to unprofitable drilling if exports are not allowed.

Oil-on-the-rise_Energy-Information-Administration_Nov2013

“Nobody wants the collapse of the oil industry,” Mr. Sheffield said in an interview. “You would be importing crude oil from the Middle East all over again.”

 

On the other side of the debate are some of the nation’s biggest refiners, who argue against unlimited exports of crude oil even as they export increasing amounts of refined products like diesel and gasoline. To their way of thinking, the oil producers are merely trying to increase their profits at the expense of American consumers.

 

“They are seeking the highest price available,” Bill Day, a vice president at the Valero Energy Corporation, a large independent refiner, said of the producers. “If anything, unlimited exports would raise the price of American crude to the international level, which is why the producers want this step to begin with.”

 

The debate began in earnest two months ago when Energy Secretary Ernest Moniz suggested at a New York energy conference that it might be time for the country to reconsider the export ban that was instituted in the 1970s, when OPEC oil embargoes threatened the American economy. Congress at the time made oil exports illegal except for some shipments to Canada. The ban on exports of Alaskan North Slope crude was lifted in 1996.

 

The topic has renewed interest thanks to the oil industry’s reversal of fortunes in recent years. Only seven years ago the country’s domestic oil production appeared to be in a downward spiral. But with the advent of new extraction techniques, entire new fields were opened, replacing oil imports from unfriendly or unruly places like Venezuela and Nigeria.

 

Suddenly parts of the Midwest and Gulf of Mexico regions are overflowing with superior grades of crude, leading to a slump in prices and a gap of as much as $10 between American oil benchmark prices and the dominant world Brent price.

 

Even under current restrictions, crude exports are growing quickly. Shipments to Canada have already roughly tripled since 2012 to around 200,000 barrels a day. Some analysts say they think that figure will double by the end of the year.

 

While the entire oil industry has profited from all the domestic production, which has increased by about 60 percent to eight million barrels a day since 2005, refiners have particularly benefited. American refiners became darlings of Wall Street by buying cheaper domestic crude and now export 3.4 million barrels a day of gasoline, diesel and other refined products, mostly to Latin America and Europe.

 

Not surprisingly, both the producers and the refiners say they are on the side of consumers and national security, and each side has academic and consultancy reports to back up its position.

 

The producers argue that if they could freely export, they would increase world oil supplies, forcing down the international Brent benchmark crude price, which in turn would reduce the price of gasoline at the pump. “The American consumer is held captive by the restrained market,” said Jack Ekstrom, a vice president at the Whiting Petroleum Corporation, a major producer in the North Dakota Bakken shale field. “When you have additional supplies coming on to market, the price naturally comes down.”

 

Executives at the refineries, which struggled for decades, counter that adding another million barrels of United States oil of daily supply to a global market of 90 million barrels a day will make little difference. Instead, they say, domestic crude prices will climb higher and with them gasoline prices.

 

“The export ban works,” Graeme Burnett, chairman of Monroe Energy, which operates Delta Air Lines’ refinery in Trainer, Pa., told a Senate Energy Committee hearing last month. “We still have a long way to go to protect against oil market volatility and achieve true energy independence.”

 

Refinery executives concede that they cannot argue against free trade when they are exporting products themselves. Michael C. Jennings, chief executive of the HollyFrontier Corporation, said in an interview that he could support ending the oil export ban as long as other regulations that he said penalize the refiners, including federal mandates for the refining of expensive biofuels, were also reformed.

 

Such sweeping energy reforms are not likely to be enacted by Congress soon. But in their talks with Commerce Department officials and members of Congress, refiners and producers appear to be closing in on some short-term compromises.

 

Some executives have suggested that Commerce Department officials could approve swaps of lighter American crudes to Mexico for their heavier sour crudes without violating current oil export regulations. That would give the producers another market and give refiners more oil to process.

 

There appears to be growing support for recharacterizing condensates, the hydrocarbon liquids used for petrochemical production, from crude to natural gas liquids, so they might be exported under current regulations. That would ease gluts in Rocky Mountain and South Texas fields where drilling has already slowed.

 

And perhaps more oil could be sent to countries with free trade agreements with the United States.

 

Such compromises, some executives say, could look something like the arrangements for export of liquefied natural gas from the United States. While gas producers supported exports and some chemical companies opposed them, the Obama administration responded by approving export terminals slowly to gauge the impact on domestic energy prices in the future.

 

“The middle ground could probably be accomplished without any additional legislation,” said Stephen H. Brown, a vice president for federal government affairs at the Tesoro Corporation, a major Texas refiner, “and I think that is what this administration is probably hoping for.”

 

Such actions by the Commerce Department, Mr. Sheffield said, could be a “relief valve that would push off the problem for another two years.”

 

But after that, he and other executives said, the country will probably again face a glut of high-quality crudes if current production trends continue.

 

A version of this article appears in print on February 13, 2014, on page B1 of the New York edition with the headline: Conflict in Oil Industry

U.S. Rail Transportation of Crude Oil: Background and Issues for Congress

CRS_logoThis is the new report (6 Feb 2014) that our congressional representatives are reading, a 25-page study by the Congressional Research Service on U.S. Rail Transportation of Crude Oil: Background and Issues for Congress.  Download here: US Rail Transportation of Crude Oil.

Summary

North America is experiencing a boom in crude oil supply, primarily due to growing production in the Canadian oil sands and the recent expansion of shale oil production from the Bakken fields in North Dakota and Montana as well as the Eagle Ford and Permian Basins in Texas. Taken together, these new supplies are fundamentally changing the U.S. oil supply-demand balance. The United States now meets 66% of its crude oil demand from production in North America, displacing imports from overseas and positioning the United States to have excess oil and refined products supplies in some regions.

The rapid expansion of North American oil production has led to significant challenges in transporting crudes efficiently and safely to domestic markets—principally refineries—using the nation’s legacy pipeline infrastructure. In the face of continued uncertainty about the prospects for additional pipeline capacity, and as a quicker, more flexible alternative to new pipeline projects, North American crude oil producers are increasingly turning to rail as a means of transporting crude supplies to U.S. markets. According to rail industry officials, U.S. freight railroads are estimated to have carried more than 400,000 carloads of crude oil in 2013 (roughly equivalent to 280 million barrels), compared to 9,500 carloads in 2008. Crude imports by rail from Canada have increased more than 20-fold since 2011.

While oil by rail has demonstrated benefits with respect to the efficient movement of oil from producing regions to market hubs, it has also raised significant concerns about transportation safety and potential impacts to the environment. The most recent data available indicate that railroads consistently spill less crude oil per ton-mile transported than other modes of land transportation. Nonetheless, safety and environmental concerns have been underscored by a series of major accidents across North America involving crude oil transportation by rail—including a catastrophic fire that caused numerous fatalities and destroyed much of Lac Mégantic, Quebec, in 2013. Following that event, the U.S. Department of Transportation issued a safety alert warning that the type of crude oil being transported from the Bakken region may be more flammable than traditional heavy crude oil.

Contents

Introduction ………………………………………………………………………. 1

Why Is Oil Moving by Rail?………………………………………………. 2

The Economics of Oil by Rail …………………………………………… 4

The Role of Barges and Ships in Domestic Crude Transportation … 7

The Jones Act ……………………………………………………………………………….. 8

The Role of Tank Trucks …………………………………………………… 8

Oil Spill Concerns ………………………………………………………………. 9

Special Concerns About Canadian Dilbit ………………….. 11

Special Concerns About Bakken Crude ……………………….. 12

Federal Oversight of Oil Transport by Rail …………………..12

Issues for Congress ……………………………………………………. 14

Railroad Safety and Incident Response ………………………….. 14

Tank Car Safety Design …………………………………………………….. 15

Preventing Derailments ……………………………………………………… 16

Railroad Operations…………………………………………………………….. 17

Incident and Oil Spill Response ………………………………………… 19

Rail vs. Pipeline Development ………………………………………….. 19

Rail Transport and Crude Oil Exports …………………………….. 21

Figures

Figure 1. U.S. Refinery Capacity by PADD in 2012 ………. 3

Figure 2. U.S. Refinery Receipts of Crude Oil by Mode of Transportation …. 4

Figure 3. Oil Spill Volume per Billion-Ton-Miles …………….. 9

Figure 4. Non-jacketed, Non-pressure Tank Car …………… 15

Oil Companies Fined For Mislabeling Crude Shipments

Repost from Huffington Post / Reuters

U.S. Oil Companies Fined For Mislabeling Crude Shipments In First Move After Series Of Derailments

Reuters, 
Main Entry Image

In this Dec. 30, 2013 file photo, a fireball goes up at the site of an oil train derailment in Casselton, N.D. (AP Photo/Bruce Crummy, File) | ASSOCIATED PRESS

By Patrick Rucker
WASHINGTON, Feb 4 (Reuters) – Three oil companies operating  in North Dakota were fined $93,000 on Tuesday for wrongly  classifying fuel shipments in the first sanctions since a series  of fiery derailments put the energy industry under a spotlight.

The Department of Transportation said Hess Corp,  Marathon Oil Corp and Whiting Petroleum Corp   were cited for wrongly classifying cargo tanks that were hauling  crude oil from the field to a railhead.

Fuel shipments must be designated with a hazard class to  alert emergency responders in the event of an accident. Eleven  of eighteen samples of one survey were mislabeled, the DOT said  in a statement.

“The fines we are proposing today should send a message to  everyone involved in the shipment of crude oil: You must test  and classify this material properly,” said Transportation  Secretary Anthony Foxx.

A spate of explosive derailments, including one in Quebec  last July which killed 47 people, has led to concerns over the  safety of shipping crude oil by rail and improper labeling.

Officials have already warned that some fuel found in North  Dakota’s energy patch, the Bakken, could be more volatile and  explosion-prone than other crude oil and that shippers should  take precautions.

Typically, crude oil carries a ‘hazard class 3’  classification and can be shipped in a standard tank car. The  shipments are further assigned a ‘packing group’ to alert to  dangers – that portion of the shipping paper was faulty, the DOT  said.

While the DOT’s Pipeline and Hazardous Materials Safety  Administration (PHMSA) has been testing crude samples for months  and issued several industry warnings, Tuesday’s action is the  first sanction.

Phmsa Administrator Cynthia Quartersman said the fines  reflected “initial findings” and that officials would scrutinize  the corrosivity, pressure and other traits of Bakken crude.

The DOT did not specify which companies would be expected to  pay what share of the $93,000 fines but by any measure the sums  were small for large energy companies.

Officials from Hess and Marathon could not immediately be  reached for comment.

Jack Ekstrom, a spokesperson for Whiting, said that the  company had not yet been contacted by the DOT about a possible  fine.

National Fee to Respond to Train Spills?

Repost from Governing the States and Localities

Chicago Mayor Calls for National Fee to Respond to Train Spills

In this photo released by the Alabama Emergency Management Agency a tanker train carrying crude oil burns after derailing in western Alabama outside Aliceville, Ala.,  Nov. 8, 2013. Associated Press Photo/Alabama Emergency Management Agency
As the U.S. enters an energy boom and rail remains the chief way of transporting it, cities need to get behind national efforts to improve safety, oversight and emergency response, Rahm Emanuel says.
by | January 23, 2014
Chicago Mayor Rahm Emanuel is proposing a national freight fee for hazardous materials to improve rail safety and help cities respond to the kind of disasters that destroyed a small Canadian town last year.

As rail transportation surges to meet the demands of an oil and gas boom underway in the U.S., cities need to take the lead on demanding better oversight, better safety and robust ways of responding to accidents, Emanuel said Thursday during the winter gathering of the U.S. Conference of Mayors. He pointed to the derailment of crude oil tankers in Alabama last year and incidents in North Dakota to illustrate the problem.  He compared an explosion last year in the Quebec town of Lac-Mégantic that leveled 30 downtown buildings and killed more than 40 people to Dresden after allied bombing raids in 1945.

The federal government would impose the fee on companies that extract crude oil and “the industrial consumers of it,” according Emanuel’s office. The mayor said the fee would fund new investments in rail safety and infrastructure, first responders in the locations of disasters and rebuilding efforts. If not through a national effort, the burden will fall mostly on individual cities, Emanuel said.

“You will end up having to do this because it’s going to be something we haven’t seen in this country in a long time,” he said. “We are literally in the early stages…of an ever increasing amount of this material coming into our cities.”

But the fee, which would take Congressional authorization, was couched within a broader call of improvements that included building safer rail cars, safer railroads and giving local officials more information about the freight entering their cities.

“None of us know what’s coming through our cities,” Emanuel said. “It may be sitting there for days and we may not know.”

The same day Emanuel proposed the fee, the U.S. National Transportation Safety Board and the Transportation Safety Board of Canada released a joint statement calling for better route planning that avoids more densely populated areas. The organizations also recommended more robust efforts to correctly classify hazardous materials before they’re shipped and oversight to ensure companies have plans for dealing with disasters.

Crude oil shipments by rail have jumped more than 400 percent since 2005, according to the U.S. safety board.

It’s not just big-city mayors who should be worried, said Mayor Butch Brown of Natchez, Miss. Thousands of cars filled with crude oil make their way from Canada each year in Natchez, where they’re transferred to barges headed down the Mississippi River, Brown said.“It’s not just critical to the metropolitan areas; it’s very critical to the smaller areas that have fewer resources to deal with these issues than larger metropolitan areas do,” he said.Transportation Secretary Anthony Foxx, who served as mayor of Charlotte before his nomination in 2013, said he welcomes all ideas for dealing with the growing problem, but there’s no “magic bullet” and broader action is needed on everything from enforcement to prevention and emergency response.

“We’ve got some work to do convincing our leaders in Congress to give us the resources we need to do inspections in a much more robust way and also make sure we have the enforcement mechanisms,” he said.

A spokeswoman in Emanuel’s office said he’ll be “working with national leaders to find the right way to implement” a more “comprehensive set of safety and infrastructure investments,” of which his proposal is one piece.