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)
Energy companies are canceling their tar sands projects.
By Brian Palmer | March 6, 2015
Photo: O.F.E.
Shell withdrew its application to extract tar sands from Canada’s Pierre River mine last week. The cancellation is news in itself, but the oil company’s decision to walk away from a massive seven-year project says a great deal about the viability of tar sands generally. Last year, the Canadian Association of Petroleum Producers cut its 2030 tar sands production forecast by 400,000 barrels per day. Last week, the energy consultancy Wood Mackenzie predicted that cash flows from tar sands would drop $21 billion in the next two years. The industry is undeniably shrinking.
Tar sands won’t disappear tomorrow, of course—most of the expense comes in opening the mine, so producers will keep operating their existing mines for several decades. New mines, however, are economically unfeasible. It’s difficult to break even in the tar sands business at current low oil prices. Over the medium term, the lack of pipeline access challenges any prospects for profitability. (That’s why the industry is so desperate for the Keystone XL and Energy East pipelines.) Looking deeper into the future, the specter of carbon taxation is enough to scare energy executives away.
All this is good news for the climate. Tar sands are the most carbon-intensive form of energy on the planet, emitting three or four times more greenhouse gas than conventional crude oil (which isn’t exactly good for the environment either). Here’s a brief rundown of all the canceled or deferred Canadian tar sands projects in recent months, and how much carbon they could have pumped into the atmosphere.
Pierre River Mine Company: Shell Stated reason for withdrawal: “Our current focus is on making our heavy oil business as economically and environmentally competitive as possible.” Projected barrels per day: 225,000 Carbon saved from the atmosphere each day, in tons: 21,000
Corner Oil Sands Project Company: Statoil Stated reason for withdrawal: “Costs for labor and materials have continued to rise in recent years…Market access issues also play a role, including limited pipeline access.” Projected barrels per day: 40,000 Carbon saved from the atmosphere each day, in tons: 3,700
Christina Lake Expansion Company: MEG Energy Stated reason for withdrawal: None given Projected barrels per day: 150,000 Carbon saved from the atmosphere each day, in tons: 14,000
Narrows Lake Company: Cenovus Stated reason for withdrawal: None given Projected barrels per day: 130,000 Carbon saved from the atmosphere each day, in tons: 12,200
Grand Rapids Company: Cenovus Stated reason for withdrawal: None given Projected barrels per day: 180,000 Carbon saved from the atmosphere each day, in tons: 16,800
Telephone Lake Company: Cenovus Stated reason for withdrawal: None given Projected barrels per day: 90,000 Carbon saved from the atmosphere each day, in tons: 8,400
MacKay River Expansion Company: Suncor Stated reason for withdrawal: “Cost management has been an ongoing focus…In today’s low crude price environment, it’s essential we accelerate this work.” Projected barrels per day: 40,000 Carbon saved from the atmosphere each day, in tons: 3,700
Joslyn Mine Company: Total Stated reason for withdrawal: “Costs are continuing to inflate when the oil price and, specifically, the [net profit] for the oil sands are remaining stable at best—squeezing the margins.” Projected barrels per day: 160,000 Carbon saved from the atmosphere each day, in tons: 15,000
* * *
Tally that up and these canceled or postponed projects represent nearly 95,000 tons of carbon dioxide staying in the ground rather than floating into the atmosphere. That’s the equivalent of taking 6.6 million cars off the road. Murmurs in the energy industry suggest that several other projects will soon be deferred or canceled, as oil prices show few signs of recovering. Stay tuned.
Repost from Health & Safety Executive (HSE), Great Britain [Editor: CONTEXT – I received this in an email from Fred Millar, independent consultant and expert on chemical safety and railroad transportation. Fred’s email comment puts the British commentary in a “North American oil-train” perspective: “Impact of falling oil prices may be quite small re volumes of Crude By Rail shipments, some informed observers have noted. But this UK HSE message highlights a likely, less visible but no less ominous impact: dangerous lowering of safety standards in the oil industry [and by implication in the newly important “pipeline on rails” railroads carrying crude oil and other hazmat]. If this impact had not been seen previously at significant levels by safety agencies, there would be no need for such blunt alarums, of course.” – RS]
No Compromise
By Judith Hackitt, HSE Chair, 2/6/15
The impacts of falling oil prices is having a wide ranging effect in the UK – from the lower cost of filling up the car to people’s livelihoods being under threat.
It is inevitable companies seek to adapt to rapidly changing circumstances and the decisions they are being forced to make are tough ones. It’s actually a stress test of leadership and senior management.
Part of that test is whether company decision makers have all the relevant information to make informed decisions.
How can they?
At the very least they have to make assumptions about what the future will look like. In this case, how long oil prices will stay at these levels? What decisions are competitor companies and industries taking? After all, they need to be making the right decisions for the company in the short term and for the mid to long term.
We’ve been here before, of course, in the 1990s when oil prices dropped and assumptions were made about the long term life of North Sea assets that proved to be wide of the mark. So this is a time when corporate memory really counts.
On that occasion the assumption was made that North Sea production would be wound down in the medium term and assets could afford to be neglected because they would soon be out of service. As prices rose again, the assets were called upon to continue to produce and many are now operating well beyond their original life expectancy. Doing that has required huge effort by the North Sea Oil and Gas industry to bring those neglected assets back up to the required standard.
Those who have led this effort to improve asset integrity deserve to be praised, but their voices need to continue to be heard as we go through this next difficult phase for the industry.
Cutting costs where there seems to be least tangible day-to-day effect is obviously tempting but leaders and senior managers need to pass the stress test on knowing where health and safety – and particularly process safety and asset integrity – sits in this mix.
Asset integrity must not suffer from short term expediency over where the axe falls. Leadership is critical to avoid wrong assumptions being made about the lifespan of assets, assumptions we know from previous experience can take years to reverse.
Current news headlines may be disconcerting, but I want all industries dealing with process safety to avoid inadvertently writing tomorrow’s headlines today.
Safety must not be compromised, even in tough times.
Twin Cities hospitals are front line in treating Bakken burn victims
There are no specialty centers near Bakken fields.
By Maya Rao, February 14, 2015
Kyle, 27, recovers at Regions Hospital after a fire on an oil site where he was working in the Bakken badly burned his legs. Photo: Maya Rao, Star Tribune
Flames seared the pants off Kyle’s legs as he raced across a bed of ruddy red rocks, screaming for help.
A pipe on a machine processing oil at high heat had burst, soaking him in methanol and sparking a fire.
“You could just feel it cooking my legs,” he said. “It almost sounded like chicken frying in an oiler.”
Hours later, Kyle woke up at Regions Hospital in St. Paul last month, after a 600-mile plane ride from the oil fields of North Dakota. His legs were burned so deeply that the bottom layer of skin would never grow back. It was the worst pain he’d ever felt.
Burn injuries among North Dakota workers have surged to more than 3,100 over the past five years, as the once nearly barren prairies have become the epicenter of a massive oil-drilling boom. Despite the flammability of Bakken crude and the danger of oil-rig work, North Dakota has no burn centers. The Twin Cities is the closest place to go for patients like Kyle, 27, who agreed to be interviewed on the condition that his last name not be used.
While other kinds of injuries may be more common, oil field burns are among the most painful and costly to treat. An oil field worker’s treatment at a burn unit can cost $1 million.
“The burns from the oil fields can be pretty dramatic,” said Bill Mohr, a surgeon at Regions.
Just 17 percent of North Dakota residents can be transported by air or ground to a burn center within two hours — fewer than every state but Alaska and Montana. The extra time it takes to move patients poses a medical challenge, since care administered in the first day factors into burn patients’ long-term recovery.
Mohr said oil field burns are three or four times bigger than those of the average patient and that Bakken burn victims who come in to Regions are more likely to need ventilators.
One died after arriving with 98 percent of his body burned. Some needed limbs amputated and had burns that bore down into the bone. Many never returned to the oil fields.
Shortage of burn doctors
Hospitals nationwide have been closing burn units and are grappling with a shortage of burn doctors. States with low populations, like the Dakotas, Montana, Wyoming and Idaho, have not been able to justify opening such expensive, specialized facilities.
When a truck carrying crude crashes and explodes, or an oil rig blows out, burn victims are initially taken to a hospital in the Bakken. The staff assesses whether the burns are severe enough to fly them to burn centers in the Twin Cities, Salt Lake City or Denver.
Gary Ramage, medical director at McKenzie County Healthcare Systems in North Dakota, said he sends patients out of state if the burns affect their respiratory system, face or hands — the most difficult areas to treat — and at least 10 percent of their body.
Oilfield workers are brought to Regions almost once a month, including a patient last month who had been working on an oil heater near Mandaree, N.D., that ignited. He died.
Another dozen Bakken burn victims have been treated at the Hennepin County Medical Center in the last three or so years, according to its burn unit director, Ryan Fey.
HCMC paid closer attention to oil field burns after a train carrying Bakken crude derailed in Casselton, N.D., 13 months ago. While no one was injured, members of the medical staff are examining how they would address an oil train accident that caused mass burn injuries.
“That’s become more and more of an issue because we have all these Bakken oil trains that come rolling through just one after another,” Fey said.
Bakken hospitals are looking at how to improve burn care. Two nurses at St. Joseph’s Hospital in Dickinson, N.D., recently traveled to a Galveston, Texas, hospital to learn burn management techniques. And doctors at Regions regularly travel to the Bakken to talk to medical staff about treating burns in the early stages.
Serious oil field burns destroy what’s known as the dermis, or the thicker, second layer of skin that contains blood vessels and sweat glands. Burn doctors excise the damaged skin to prevent infections. Then they apply bioengineered tissue made of cow collagen and shark cartilage to function as the new dermis. They harvest the top layer of skin from a healthy part of the body and graft it over the artificial skin tissue.
Even after recovering from those surgeries, patients must still do months or years of physical therapy to fix the loss of flexibility in their skin. And then there is the emotional recovery: Severe burn patients can face post-traumatic stress disorder on par with soldiers.
Lighting a cigar
Advances in burn treatment mean that some oil workers who would have died a decade or two ago now have a chance.
One is Casey Malmquist. The head of a Whitefish, Mont., construction company, Malmquist came to the Bakken to build housing for oil workers. In July 2013, he stepped onto the deck of one of the newly finished homes for Halliburton employees and leaned over to light a cigar.
There was a whoosh and then an explosion. He flew off the deck. His shirt, he recalled, lit up like a lantern.
The cause appeared to be leaking propane gas that had not been properly odorized to alert him that he was near a flammable substance. He fell into a coma and woke up three weeks later at Regions, 68 percent of his body burned. The Bemidji native, then 56, seemed destined to die.
But after three months at Regions and many surgeries, Malmquist returned to Montana. He still goes to physical therapy daily and hasn’t returned to some of the activities he once loved, like hockey, because his skin is fragile and managing his body temperature is difficult.
He said living in his new body “is like wearing a wet suit that’s five times too small, and there’s ground glass between you and the wet suit.”
In November, Minneapolis attorney Fred Pritzker sued Horizontal Resources on Malmquist’s behalf, claiming the company was negligent in not odorizing the propane.
Nightmares
Kyle moved to Williston, N.D., in 2011 with his pregnant wife, Shawna, after he was laid off as a plumber in Helena, Mont.
He found work as a maintenance roustabout, checking oil tanks, pumping units, well heads and other equipment.
Last month, Kyle and a co-worker went to an oil pad just south of Ross, N.D., and noticed a unit by the oil treater was frozen. Oil treaters separate oil from water and gas before it moves to storage tanks. After they worked to thaw it with water from a hot oil truck, Kyle said he tried to fix a misplaced valve.
A pipe blew out and soaked him with gas. It was so uncomfortable that he took off the flame-retardant pants over his jeans just before a fire ignited.
Several men who saw Kyle ablaze tackled him and blasted him with a fire extinguisher, ordering him to roll on the ground.
As the ambulance took him to a hospital in Stanley to be stabilized, Kyle said he thought, “How am I going to support my family now?”
He woke up in Regions with a breathing tube, his legs stapled and wrapped in casts.
Kyle can walk; he strode down the hall to pick up Forrest Gump from the hospital’s movie selection after his wife joked that she’d make him watch Titanic. But it hurts.
As OSHA investigates, Kyle said he doesn’t blame his company and considers it a freak accident. He hopes to get his old job back one day.
Memories of the fire shake him. “I keep having nightmares about it,” Kyle said. “I’ve been trying to take a nap all day and … I jump and think that I’m back in the fire.”
