Category Archives: Massive increase in crude-by-rail

Bakken Crude, California, Crude By Rail, Massive increase in crude-by-rail, Oil prices

California Crude Trains: How Much Oil Is Actually Coming In and Where Is It Coming From?

Repost from North American Shale Blog
[Editor: Notwithstanding the disparaging remarks about crude-by-rail opponents and politics in California, this is an interesting report by a pro-industry analyst.  – RS]

California Crude Trains: How Much Oil Is Actually Coming In and Where Is It Coming From?

By Gabriel Collins
California has become ground zero for legal opposition to crude-by-rail projects. Opponents decry derailments, toxic vapors, and other ills.[i]  Yet despite the dire images painted by crude-by-rail’s opponents, the reality on the ground in California has been quite mundane thus far. The high-water mark to date for California railborne crude supplies was approximately 39 thousand barrels of oil per day (kbd) in December 2013 (Exhibit 1).

To put this number in perspective, California refineries typically process an average of around 1.7 million barrels per day of crude – meaning that at the crude-by-rail peak, only about one barrel in 50 of the state’s crude supply came in by rail.[ii]  Presently, the number is closer to one barrel in 100 – certainly not the overwhelming flood of trains opponents fear. And to that point, even supplying one-quarter of California’s total crude oil needs would only require about six to seven crude oil unit trains per day. To put this in context, the Colton Crossing east of Los Angeles by itself can see more than 100 freight trains per day.[iii]

Exhibit 1: California Crude by Rail Sources

exhibit 1
Source: California Energy Commission, Alberta Office of Statistics and Information

Where California’s Railborne Oil Imports Come From

For much of the past six years, light, low-sulfur Bakken crude and heavier, higher-sulfur Western Canadian Select (“WCS”) dominated rail imports into California. Canadian supplies show a clear correlation with how cheap WCS is relative to Maya, a heavy crude oil from Mexico that is shipped by tanker and offers a proxy for what heavy, sour, waterborne crude oil imports into California will cost. The spread between WCS and Maya prices matters because it only makes sense for refiners to purchase WCS barrels if they are sufficiently discounted that the buyer still comes out ahead after adjusting for rail transport costs, which can amount to approximately $20/barrel for manifest trains and $15/barrel for oil moved on unit trains.[iv]

For reference, “manifest trains” are mixed cargo trains where a 100-car freight train might include 20 or 30 tanker cars carrying oil. Unit trains, on the other hand, carry only one type of freight, meaning that all 100 to 120 cars carry crude oil. This maximizes economies of scale and significantly reduces transportation costs. Shipments of Canadian crude oil into California traditionally rode on manifest trains, but in November 2014, Union Pacific brought its first unit train of crude oil from Western Canada into California, to a terminal near Bakersfield.[v] The route is currently dormant as WCS crude’s discount to Maya was less than $10 per barrel in January 2015, according to official price data, making it uneconomical to import the Canadian oil by rail.[vi] Unit trains’ lower costs relative to the previously used manifest trains will likely have oil trains rolling from Alberta to California once again if the WCS discount widens to around $15 per barrel.

California has also seen increased supplies of light, low-sulfur crude oil from New Mexico in recent months. The most likely explanation for this is that continued strong oil production in Texas, New Mexico, and the Midcontinent are inundating the Gulf Coast with light, sweet barrels. Indeed, this author’s models using official Energy Information Administration data strongly suggest that Gulf Coast refineries have hit a physical “wall” where they are not able to sustainably use more than 65 percent domestic crude oil to supply their plants, because facilities designed for heavier, higher-sulfur oils cannot run at maximal efficiency with light, low-sulfur crude feedstocks.[vii] This crowded market reduces the potential realized value of crude to certain Permian Basin producers and makes California attractive as a clearing destination because crude can be railed from the Permian Basin to California for as little as $7-8/bbl, according to Tesoro.[viii]

What the Future May Hold

The bottom line is that California’s existing crude-by-rail terminal capacity is massively underutilized at present. The state’s two largest facilities alone – Kinder Morgan’s terminal at Richmond and new terminal near Bakersfield – can offload more than 140 kbd at full capacity. In comparison, crude-by-rail import volumes were less than 20 kbd in December 2014, the last month for which data are available (Exhibit 2). 

Exhibit 2: California Crude by Rail Capacity vs. Actual Import Volumes

exhibit 2
Source: California Energy Commission, Company Reports

Current terminal capacity is sufficient for approximately two unit trains per day of crude – 140 to 150 kbd – to enter the state. California’s fickle politics make forecasting crude-by-rail volumes a tough exercise. That said, this author believes that if oil prices recover to at least $75/bbl, California’s railborne crude imports will likely exceed 200 kbd by early 2016. Under those conditions, existing terminals would increase their capacity utilization and larger price differentials would attract additional Canadian heavy crude, as well as Bakken and other light, sweet grades from the Rocky Mountain states and the Permian.

[i] “GROUPS SUE TO STOP DAILY 100-CAR TRAIN DELIVERIES OF TOXIC CRUDE OIL TO BAKERSFIELD TERMINAL,” Earthjustice, January 29, 2015, http://earthjustice.org/news/press/2015/groups-sue-to-stop-daily-100-car-train-deliveries-of-toxic-crude-oil-to-bakersfield-terminal; See also Alexander Obrecht, “Environmental Groups Ramp Up the Crude-by-Rail Fight in the Courtroom,” BakerHostetler North America Shale Blog, October 6, 2014, http://www.northamericashaleblog.com/2014/10/06/environmental-groups-ramp-up-the-crude-by-rail-fight-in-the-courtroom/
[ii] “FACTBOX – California crude sources and oil-by-rail projects,” Reuters, July 21, 2014, http://af.reuters.com/article/energyOilNews/idAFL2N0PM26S20140721
[iii] “Colton Flyover Supports L.A.-Area Business,” Union Pacific Railroad, September 5, 2013, http://www.uprr.com/newsinfo/community_ties/2013/september/0905_colton.shtml
[iv]Yadullah Hussein, “Oil-by-rail economics suffers amid narrowing spreads,” Financial Post, February 9, 2015, http://business.financialpost.com/2015/02/09/oil-by-rail-economics-suffers-amid-narrowing-spreads/?__lsa=c711-5acd
[v] Bruce Kelly, “UP begins Canada-to-California CBR service,” Railway Age, November 25, 2014, http://www.railwayage.com/index.php/tag/CBR/feed.html
[vi] “Heavy Crude Oil Reference Prices, Monthly,” Alberta Office of Statistics and Information, https://osi.alberta.ca/osi-content/Pages/OfficialStatistic.aspx?ipid=941 (last accessed March 18, 2015)
[vii] Detailed explanation of models available; please contact author at gcollins @ bakerlaw.com.
[viii] Company investor presentation, September 2014, “Rail Costs to Clear Bakken,” slide 11, http://phx.corporate-ir.net/phoenix.zhtml?c=79122&p=irol-presentations
Bakken Crude, CPC-1232, Crude By Rail, Derailment, DOT-111, Explosion, Federal Regulation (U.S.), Massive increase in crude-by-rail, Tank car design, Tank car retirement, Tar sands crude

Federal Railroad Administrator on newer tank car: “It’s a Pinto with a better bumper instead of just a Pinto”

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.”

Links

Bakken Crude, Massive increase in crude-by-rail, Rail crossings, Sarah Feinberg, Train collission, U.S. Department of Transportation, Volatility

Rail agency’s new head draws kudos, despite string of crashes

Repost from The Boston Globe

Rail agency’s new head draws kudos, despite string of crashes

By Ashley Halsey III, Washington Post, March 22, 2015
Smoke and flames erupted from railroad tank cars loaded with crude oil that derailed March 5 near Galena, Ill.
Smoke and flames erupted from railroad tank cars loaded with crude oil that derailed March 5 near Galena, Ill. Mike Burley / Telegraph Herald via Associated Press

WASHINGTON — After a string of deadly train crashes, a pair of angry US senators stood in New York City’s Grand Central Terminal four months ago to denounce the Federal Railroad Administration as a ‘‘lawless agency, a rogue agency.’’

They said it was too cozy with the railroads it regulates and more interested in ‘‘cutting corners’’ for them than protecting the public.

In the past two months, photos of rail cars strewn akimbo beside tracks have rivaled mountains of snow in Boston for play in newspapers and on television.

But the reaction by Congress to the railroad oversight agency’s performance has been extremely positive recently.

Accolades were directed at its acting head, Sarah Feinberg, even though her two-month tenure in the job has coincided with an astonishing number of high-profile train wrecks:

  • Feb. 3: Six people were killed when a commuter train hit an SUV at a grade crossing in Valhalla, N.Y.
  • Feb. 4: Fourteen tank cars carrying ethanol jumped the tracks north of Dubuque, Iowa, and three burst into flames.
  • Feb. 16: Twenty-eight tank cars carrying crude oil derailed and caught fire in West Virginia.
  • Feb. 24: A commuter train derailed in Oxnard, Calif., after hitting a tractor-trailer at a grade crossing.
  • March 5: Twenty-one tank cars derailed and leaked crude oil within yards of a tributary of the Mississippi River in Illinois.
  • March 9: The engine and baggage car of an Amtrak train derailed after hitting a tractor-trailer at a grade crossing in North Carolina.

At first glance, Feinberg seems an unlikely choice to replace Joseph Szabo, the career railroad man who resigned after five years in the job. She is 37, a former White House operative, onetime spokeswoman for Facebook’s Mark Zuckerberg, and, most recently, chief of staff to the US Department of Transportation secretary.

Nothing on her résumé says ‘‘railroad.’’

‘‘Sometimes it’s good to have an outside person,’’ said Senator Charles Schumer, Democrat of New York, who got a call from Feinberg immediately after the Feb. 3 crash in Valhalla. ‘‘She’s smart, she’s a quick study, she knows how to bring people together. I think she’s the right person for the job.’’

‘‘Whether she’s had a lifetime experience riding the rails or working on the rails, she knows how to get to the crux of things and move things forward,’’ said Senator Joe Manchin III, a West Virginia Democrat who arrived at the Feb. 16 crash shortly before Feinberg did. ‘‘I was very impressed.’’

Schumer calls Feinberg ‘‘hard-nosed’’ and says she isn’t worried if she ruffles some in an industry grown accustomed to a more languid pace of change.

After the Valhalla crash, Feinberg pulled together a team to come up with a better way to address an issue that kills hundreds of people at grade crossings each year.

‘‘We’re at a point where about 95 percent of grade-crossing incidents are due to driver or pedestrian error,’’ Feinberg said. ‘‘While I don’t blame the victims, this is a good example of a problem that needs some new thinking.’’

A month later, she called on local law enforcement to show a greater presence at grade crossings and ticket drivers who try to beat the warning lights. Next, the railroad agency says it plans ‘‘to employ smarter uses of technology, increase public awareness of grade crossing safety, and improve signage.’’

‘‘When it comes to the rail industry, that is lightning fast, and it’s really impressive,’’ said a congressional aide who focuses on transportation.

Grade-crossing deaths pale in comparison to the potential catastrophe that Feinberg says keeps her awake at night. ‘‘We’re transporting a highly flammable and volatile crude from the middle of the country, more than 1,000 miles on average, to refineries,’’ she said.

All of the recent crude-oil train derailments happened miles from the nearest town. But little more than a year ago, a CSX train with six crude-oil tank cars derailed on a river bridge in the middle of Philadelphia. And an oil-fueled fireball after a derailment in Lac-Mégantic, Quebec, in July 2013 left 47 people dead.

The number of tank-car trains has expanded exponentially since the start of a production boom centered in North Dakota. Seven years ago, 9,500 tank cars of Bakken crude traveled by railroad. Last year, the number was 493,126. In 2013, an additional 290,000 cars transported ethanol.

Mindful of the potential for disaster, the White House tasked the Office of Management and Budget and the Transportation Department with figuring out how to safely transport the oil. At DOT, that fell to Feinberg, who had just signed on as chief of staff to Secretary Anthony Foxx.

‘‘We found her to be very hands-on, firm but fair, and ready to work with all stakeholders in making fact-based decisions,’’ said Ed Greenberg of the Association of American Railroads. ‘‘She is someone who has quickly recognized the challenges in moving crude oil by rail. And the freight rail industry is ready to work with her” in her new role at the Federal Railroad Administration, he said.

Bakken Crude, Crude By Rail, Environmental review, Massive increase in crude-by-rail, Public permitting

Environmentalists play ‘Whac-A-Mole’ to stall crude-by-rail projects

Repost from Environment & Energy Publishing (EEnews.net)

Environmentalists play ‘Whac-A-Mole’ to stall crude-by-rail projects

By Ellen M. Gilmer and Blake Sobczak, March 20, 2015
(Second of two stories. Read the first one here.) [Subscription required]

When an oil company’s expansion plans for Pacific Northwest crude by rail suffered a major setback last month, environmentalists spread the news just as quickly as they could Google “Skagit County Hearing Examiner.”

The little-known local office about an hour north of Seattle holds the keys to land use in the area, and environmental attorneys saw it as the best shot to stall a rail extension considered critical for the delivery of crude oil to a nearby Shell Oil Co. refinery, but potentially disastrous for nearby estuaries and communities.

The effort was successful: After environmental groups appealed a county-level permit for the rail project, Skagit County Hearing Examiner Wick Dufford sent the proposal back to the drawing board, ordering local officials to conduct an in-depth environmental impact statement to consider the broad effects of increased crude-by-rail throughout the county.

“The environmental review done in this case assumes that the whole big ball of federal, state and local regulations will somehow make the trains safe. And that if an accident happens, the response efforts described on paper will result in effective clean up, so that no significant adverse effects are experienced,” Dufford wrote. “There is no proven basis for such conclusions.”

The decision was an incremental but significant victory for environmental groups, sending a signal to industry that its increasing reliance on railed-in crude could face formidable hurdles.

Skagit County is just one piece of a larger plan to expand crude-by-rail across the country to better connect refineries and ports with prolific oil plays like North Dakota’s Bakken Shale. The use of rail to deliver crude oil has skyrocketed in recent years, rising from 9,500 tank cars of crude in 2008 to nearly 500,000 carloads in 2014, according to industry data. Projects in Washington and other refinery hubs aim to expand facilities and extend rail spurs to handle even more crude deliveries.

Shell spokesman Curtis Smith said the company is “confident that we can satisfy any remaining issues associated with the project” to add rail capacity to its Puget Sound Refinery in Skagit County.

“This project is critical to the refinery, the hundreds of employees and contractors who depend on Shell, and the regional economy,” he said. “We do not feel it should be held to a different standard than the crude-by-rail projects of the neighboring refineries that have been approved.”

Smith added that “we all share the top priority of safety.”

But the new reality of crude-by-rail traffic has environmentalists on edge. Oil train derailments in Illinois, West Virginia, North Dakota and other places have led to fires, spills and, in one case, lost lives. A 2013 crude-by-rail explosion in Lac-Mégantic, Quebec, killed 47 people, prompting regulators in the United States and Canada to review the inherently piecemeal rules governing crude-by-rail transportation.

The federal government has authority over certain details, such as standards for tank cars used to haul crude. But most expansion plans and related environmental concerns are left to local agencies situated along oil routes. The result is a hodgepodge of permitting decisions by local authorities following varying state laws, while a team of environmental lawyers challenges expansion projects one by one.

“It’s a little bit like Whac-A-Mole because there isn’t a big permitting scheme,” said Earthjustice attorney Kristen Boyles, who represented six environmental groups in the Skagit County appeal. “It makes it difficult and makes it frustrating for the public.”

State laws in play

So far, the Whac-A-Mole approach is working well for environmentalists.

After three oil refineries in Washington went unopposed in building facilities to receive rail shipments of crude oil, Boyles said environmentalists and community advocates began tracking local land-use agencies more closely.

Earthjustice and the Quinault Indian Nation successfully challenged two proposed crude projects in Grays Harbor County, southwest of Seattle, leading a review board to vacate permits and require additional environmental and public health studies. A third Grays Harbor project is also preparing a comprehensive environmental review.

The next project on environmentalists’ radar is in Vancouver, Wash., just across the Columbia River from Portland, Ore., where Savage Cos. and Tesoro Refining and Marketing Co. have proposed building a new terminal to transfer railed-in crude oil to marine tankers bound for West Coast refineries. The Sierra Club, ForestEthics and several other groups earlier this month moved to intervene in the state agency review process for the project, citing major threats to the Columbia River and public health.

The key to all of these challenges is Washington’s State Environmental Policy Act (SEPA). Similar to the National Environmental Policy Act, SEPA requires government agencies to conduct a broad environmental impact statement for any major actions that may significantly affect the environment.

For projects in Skagit County, Grays Harbor and now Vancouver, state and local officials considering challenges look to SEPA to determine how rigorous environmental review must be, based on whether projects are expected to have major impacts. To Dufford, the Skagit examiner, the answer is plain.

“Unquestionably, the potential magnitude and duration of environmental and human harm from oil train operations in Northwest Washington could be very great,” he wrote.

Down the coast in California, environmentalists have an even stronger tool: the California Environmental Quality Act. Considered the gold standard in state-level environmental protection laws, CEQA has already proved useful in halting a crude-by-rail expansion project in Sacramento.

In Kern County, a team of environmental attorneys is also relying on CEQA to appeal construction permits for the Bakersfield Crude Terminal, a project that would ultimately receive 200 tank cars of crude oil per day. The local air quality board labeled the construction permits as “ministerial,” bypassing CEQA review, which is required only for projects considered discretionary. A hearing is set for next month in Kern County Superior Court.

Earthjustice attorney Elizabeth Forsyth, who is representing environmental groups in the Bakersfield case, said the state environmental law has been powerful in slowing down the rapid rise of crude-by-rail operations.

“In California, we have CEQA, which is a strong tool,” she said. “You can’t hide from the law. You can’t site your project out in some town that you think won’t oppose you.”

Unified strategy?

Still, the one-at-a-time approach to opposing crude-by-rail growth is undoubtedly slow-going, and progress comes bit by bit.

Boyles noted that Earthjustice attorneys from Washington to New York frequently strategize to “unify” the issues and make broader advances. On tank cars, for example, environmental groups have come together to press the Department of Transportation to bolster safety rules.

“That at least is some place where you could get improvements that could affect every one of these proposals,” she said.

But for expansion projects, the effort must still be localized.

“You have this giant sudden growth of these sort of projects, and that’s the best we can do at this point to review each of them and comment,” said Forsyth, the California lawyer, who said the end goal is to empower local agencies to control whether proposals move forward and to mitigate the impacts when they do.

Though labor-intense, advocates say the approach has paid dividends. Projects that would have otherwise flown under the radar are now under rigorous review, and industry players no longer have the option of expanding facilities quietly and without public comment.

“If you hadn’t had these citizens challenging these projects,” Boyles said, “they’d be built already; they’d be operating already.”

The delays have set back refiners seeking to use rail to tap price-advantaged domestic crude — particularly in California.

“The West Coast is a very challenging environment,” noted Lane Riggs, executive vice president of refining operations at Valero Energy Corp., which has faced staunch environmentalist opposition at a proposed oil-by-rail terminal in Benicia.

Riggs said in a January conference call that “we’re still pretty optimistic we’ll get the permit” for the 70,000-barrels-per-day unloading terminal at its refinery there, although he added that “timing at this point is a little bit difficult.”

Facing pressure from concerned locals and the Natural Resources Defense Council, Benicia officials last month opted to require updates to the rail project’s draft environmental impact review, further delaying a project that was originally scheduled to come online in 2013.

A Phillips 66 crude-by-rail proposal in San Luis Obispo County, Calif., has encountered similar pushback. If approved, the project would add five 80-car oil trains per week to the region’s track network. The potential for more crude-by-rail shipments has drawn opposition from several local city councils and regional politicians, despite Phillips 66’s pledge to use only newer-model tank cars (EnergyWire, Jan. 27).

Some town leaders have also separately taken action against railroads bringing oil traffic through their neighborhoods, although federally pre-emptive laws leave cities vulnerable to legal challenges (EnergyWire, March 19).

‘Business as usual’

Local, often environmentalist-driven opposition is seen as “business as usual” within the refining industry, according to Charles Drevna, president of the American Fuel and Petrochemical Manufacturers.

“This is just another extension of the environmental playbook to try to obfuscate and delay,” said Drevna, whose trade group represents the largest U.S. refiners. “We’ve been dealing with that for years, and we’re going to continue to be dealing with it.”

While Drevna said he doesn’t see lawsuits “holding up any of the plans” for refiners to improve access to North American oil production, environmentalists chalk up each slowdown to a victory.

In New York, a plan to expand a key crude-by-rail conduit to East Coast refiners has been held in limbo for over a year at the Port of Albany, owing to an environmentalist lawsuit and closer public scrutiny.

The proposal by fuel logistics firm Global Partners LP would have added a boiler room to an existing facility to process heavier crude from Canada. But advocacy groups including Riverkeeper have challenged the company’s operating air permit, calling for more review by New York’s Department of Environmental Conservation (EnergyWire, Jan. 13, 2014).

“All of the actions we’ve taken with Earthjustice and others have really ground to a halt DEC’s repeated approvals of these minor modifications,” said Kate Hudson, watershed program director for Riverkeeper. “We have not seen tar sands. … The river has been spared that threat for a year-plus, at this point.

“We certainly have no regrets,” she said.

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