Category Archives: Tar sands crude

Bakken Crude, Crude By Rail, Derailment, Ethanol, Oil prices, Spill, Tar sands crude

How Cheap Crude Stalled America’s Booming Oil Trains

Repost from Bloomberg Business

How Cheap Crude Stalled America’s Booming Oil Trains

It was a record year for oil train mishaps—and the year crude-by-rail hit the brakes.

By Matthew Philips , December 2, 2015 – 4:00 AM PST

 

David Wilson/Flickr

It’s been several months since an oil train accident grabbed big headlines—but not because there haven’t been any. A single weekend in November saw two trains derail in Wisconsin. The first spilled about 20,000 gallons of ethanol into the Mississippi River, followed a day later by a spill of about 1,000 gallons of North Dakota Bakken crude.

This year has already been the costliest by far for crude train explosions. Derailments in 2015 have caused $29.7 million in damage, according to data from the U.S. Department of Transportation, a huge increase from $7.5 million in 2014. Most of this year’s price tag can be attributed to two crashes within a three-week span. The Feb. 16 derailment of a CSX train in West Virginia triggered a massive explosion near a cluster of homes along the Kanawha River and led to more than $23 million in damage. A BNSF train that derailed and exploded in Illinois on March 5 caused an additional $5.5 million in damage. Both trains were carrying highly explosive crude from North Dakota.

The lesser-noticed recent accidents haven’t come with explosions or towering fireballs. At least some of the ruptured tank cars were the newer-model CPC-1232, which are supposed to be less likely to split open. The U.S. and Canada earlier this year announced stricter tank car standards, mandating further improvements in the future. Those rules will cost companies—mostly those that ship crude—an estimated $2.5 billion from 2015 to 2034; government estimates suggest the benefits will range from $912 million to $2.9 billion, presumably from fewer accidents.

But even without changing safety standards, there’s reason to suspect that costly train accidents will decline. While 2015 will go down as the worst year for crude train disasters, it’s also shaping up to be the year crude-by-rail hit the brakes. The crash in prices has slowed activity in the oilpatch and reduced the amount of petroleum riding the rails. The number of train carloads carrying petroleum has fallen 30 percent through Nov. 20 since peaking in December 2014, according to the American Association of Railroads. The monthly data on crude-by-rail shipments kept by the U.S. government lags a few months behind, but as of September those shipments had dropped 21 percent from their peak in January 2015.

Rail shipments of petroleum are down 30 percent in 2015.
Rail shipments of petroleum are down 30 percent in 2015.

This marks the first sustained decline in crude-by-rail traffic since it took off in 2009, jumping an astounding 5,000 percent in a little more than five years. Putting oil on trains was never the most efficient way to move it. It’s expensive and slow, not to mention dangerous. But in the places where the shale boom has unlocked the biggest amounts of crude, trains were often the only option.

That’s especially true in North Dakota, home to the Bakken formation, where oil production has risen from about 200,000 barrels a day to more than 1 million. By 2013, 71 percent of Bakken crude was transported by train. North Dakota has almost single-handedly driven the crude-by-rail boom, accounting for 80 percent of all oil train traffic in the U.S. as of earlier this year.

Since the third quarter of 2014, however, two pipeline projects have been completed in North Dakota, increasing the amount of oil that can be piped out of the state by nearly 200,000 barrels a day. There’s also a new refinery that opened earlier this year, reducing the amount of oil that needs to be railed down to the large refineries outside Chicago. Since 2011, North Dakota’s combined pipeline and refining capacity has doubled, from 400,000 barrels a day to 800,000. By the end of 2017 it’s slated to double again, to 1.5 million barrels a day.

Oil traders now have options for how to move oil out of North Dakota. But there’s another reason they’re pulling back on the amount they put on the rails: It’s not as profitable as it used to be. Early on, the shale boom created an enormous glut of crude that ended up stuck in the middle of the country. Getting it to market meant putting it on trucks and trains and barges, which was expensive and slow. So the price of U.S. crude fell compared with international prices. By October 2011 a barrel of U.S. oil pegged to the West Texas Intermediate contract that trades in New York was $27 cheaper than an equivalent barrel priced against the Brent contract trading in London.

That differential led to one of the biggest arbitrage opportunities the oil market has ever seen. Savvy traders could buy cheap oil in the middle of the U.S., find a way to move it, and sell it for higher prices along the coasts, where the market is more exposed to Brent prices. The price to send a barrel of oil by rail from North Dakota down to the U.S. Gulf Coast was about $9 or $10; the rest became profit. Over the past few years, millions of barrels of oil in North Dakota got loaded onto trains bound for the East Coast and the Gulf.

But as the U.S. oil infrastructure reoriented around the shale boom and pipelines began moving domestic oil to the coasts, instead of moving imports into the heartland, the spread between WTI and Brent has narrowed. The crash in global oil prices has closed the gap even further, to the point that a barrel of WTI crude is now just $3 cheaper than a barrel of Brent. That’s not enough to make money if you have to ship it hundreds of miles on a train. Refineries in Texas and Louisiana have switched from railing oil in from North Dakota to importing more crude from West Africa.

As a result, there’s now a glut of tank cars on the market. According to energy research firm Genscape, lease rates have fallen from $2,500 a month to about $500. Big refining companies, which are among the largest crude-by-rail shippers, are shifting their strategy and trying to lock in prices for three and four years rather than just a few months.

David Vernon, a transportation analyst at Sanford C. Bernstein, thinks crude-by-rail traffic has peaked. “The heyday is over,” he said. “The high-water mark has likely been set in terms of volumes.”

Canada’s growing oil production is expected to outpace its capacity of new pipelines.
Canada’s growing oil production is expected to outpace its capacity of new pipelines.
Citigroup

Canada, however, could be a different story. Although the country’s oil sands industry is struggling against low prices, there are projects currently under construction that will be finished over the next few years. That extra oil will have to move somehow, and as of now, trains are looking like a strong candidate. Canada’s oil production is forecast to grow faster than pipelines can be built, especially now that the Keystone XL is officially dead. So while the number of trains loaded with crude crisscrossing the U.S. may diminish in the next few years, rail may remain a viable option in Canada.

 

 

Bakken Crude, Crude By Rail, Derailment, Earthquake, Fire, Fish and wildlife, Massive increase in crude-by-rail, Rail Safety, Tar sands crude

Tesoro Savage Port of Vancouver report: 28 more oil trains each week; salmon, earthquake, derailment risks, etc.

Repost from the Seattle Times
[Editor:  The press is full of revealing information taken from the Draft Environmental Impact Statement (DEIS) analyzing the proposed Tesoro Savage Vancouver Energy Project.  The document was released yesterday.  Several media links are provided below.  – RS]

28 more oil trains across state each week if big terminal built, study says

By Hal Bernton,  November 24, 2015, Updated 11/25/15 9:25 am

A major oil terminal proposed for Vancouver, Wash., would bring an additional 28 oil trains per week across the state and launch a new era of oil-tanker traffic down the Columbia River, according to a draft state study released Tuesday.
…but concerns about the risks of oil-train derailments … the study noted that trains also may deliver bitumen — a heavier crude …  [FULL STORY]

Also see:

 

Alberta Canada, Carbon pricing systems, Carbon taxes, Climate Change, Coal, Jobs, Keep it in the ground, Oil industry lobby, Pipeline transport, Public transit, Renewable energy, Tar sands crude

Alberta Canada: Don’t cheer the new premier yet. Demand she break the oil barons’ vice-grip

Repost from The Guardian
[Editor:  Significant quote: “…investment in oil and gas creates fewer jobs than practically any other industry. Investment in the clean energy sector, on the other hand, creates 7 to 8 times more work. The oil barons aren’t essential “job creators”; they’re economic suppressers.”  – RS

Don’t cheer Alberta’s premier yet. Demand she break the oil barons’ vice-grip

Alberta’s climate plan falls far short of what’s possible: unleashing a green economy that creates hundreds of thousands of jobs and transitions off the tar sands

By Martin Lukacs, 24 November 2015 14.12 EST, updated 25 November 2015 10.28 EST
The Syncrude Oil Sands site near to Fort McMurray in Northern Alberta. Photograph: David Levene for the Guardian

Alberta’s new climate plan is drawing praise from sources that have rarely got on with the oil-exporter – Al Gore, labour unions and some of North America’s biggest green groups. At first glance, it’s not hard to see why: Alberta is promising an accelerated phase-out of coal, increased funds for renewable energy and impacted workers, and a price on carbon. It’s a major step hard to imagine scarcely a year ago, when the province was still under a multi-decade Conservative reign.

So why then are the oil barons celebrating? Beaming with pride, the heads of Canada’s biggest tar sands companies flanked Premier Rachel Notley during Sunday’s announcement.

Their hope: that Alberta’s globally tarred reputation will suddenly be scrubbed clean. Despite the lofty rhetoric, the government has committed only to bringing emissions below today’s levels by 2030 – making it even less ambitious than what Stephen Harper’s federal petro-state offered. This might be what the Premier meant when she promised that new pipelines – which companies desperately need to export tar sands – would soon benefit from “creative lobbying and advocacy efforts.”

The tar sands now has a glossy new sheen. Alberta’s plan sets a cap on their emissions – an acknowledgement that tar sands will no longer grow infinitely. Except it’s so high as to allow a staggering forty percent increase over the next fifteen years. And if a Conservative government returns to power, could it abandon the policy and ensure nothing is accomplished? In other words, this is a cap big enough to drive a three-story tar sands truck through.

Here’s the other reason the oil barons are cheering: they know they could be getting squeezed a hell of a lot more. After all, Alberta’s New Democratic Party got elected with a mandate for bold change. Albertans were tired of oil-soaked politicians who let companies vacuum up billions in profit amidst skyrocketing inequality and deteriorating public services. And the oil price crash made clearer than ever before the cost of a boom-and-bust economy built on a single volatile commodity.

Climate science backs that mandate for rapidly transforming our economy: it tells us that since we’ve delayed for so long, small reforms will no longer suffice. And Albertans understand the scientific reports that the vast majority of fossil fuels need to stay in the ground to avert dangerous climate change – the impacts of which they’ve already experienced in flooded Calgary and a drought-parched countryside. But while good times fueled denial, the ecologically suicidal politics of the establishment could be ignored. When the oil shock hit, they also started looking economically reckless.

As the oil barons thrash about in a self-induced crisis, this should be the time to part ways with them. Exxon is being investigated in the United States for having discovered the lethal consequences of climate change in the 1970s, then lied about it for decades while doing everything to make this catastrophe a reality. Low oil prices – which don’t look to be going away – have already forced the cancellation of extraction projects and created a thaw in investment throughout Alberta’s oil patch. The cost of renewable energy has dropped at incredible and unexpected speed. And just weeks ago, President Obama rejected the Keystone XL pipeline. It was not, as Premier Notley put it, a “kick in [Alberta’s] teeth.” But you couldn’t pick a better moment to kick the oil barons to the curb.

None other than the Economist – not exactly a radical menace to big business – has argued that the oil price collapse offers a “once-in-a-lifetime opportunity” to transform a dysfunctional energy system.

The Alberta government could start by vanquishing the myth that the oil barons are economically indispensable. As the oil industry has thrown almost forty thousand people out of work, they have proved their interests never aligned with Albertans. The facts always told a different story: investment in oil and gas creates fewer jobs than practically any other industry. Investment in the clean energy sector, on the other hand, creates 7 to 8 times more work. The oil barons aren’t essential “job creators”; they’re economic suppressers.

So why – and this applies equally to Prime Minister Trudeau – fixate on building cross-country pipelines, when you could create more jobs in clean energy? Tackling climate change could be not just a public relations strategy to finesse the exporting of Alberta’s bitumen. It could be a chance to massively boost and transform the economy – making it more healthy, just and humane.

Look at what Germany – a similar, industrialized nation – has accomplished. In just over a decade, Germany has generated 30 percent of their electricity through renewables and created 400,000 good jobs in clean energy, much of it community-controlled and run by energy cooperatives. Using the right policies, Alberta could make this transition happen even more quickly, with greater benefits for First Nations, workers, and those getting the worst deal in the current economy.

It’s not too late to seize the historic opportunity. The NDP could still put forward a plan to create 200,000 good, green jobs over the next several years. Reports have laid out how this could happen with targeted investment: in accessible public transit, in energy-saving housing retrofits, in eco-system restoration, and by taking advantage of Alberta’s incredible potential for renewable energy. Nature didn’t make Alberta an oil province. Erect new signs: welcome to solar, wind and geothermal country.

How should Alberta pay for this transition? By putting their hands on the enormous profits of the industry that created the crisis in the first place. The new carbon tax – and the royalty hike the government must vigorously pursue – should be raised to send a stronger message to the market to jump-start a transition off oil.

Economists have shown a fair and effective tax would look more like $200 a tonne. $20 or $30 a tonne will not cut it – especially when half of the revenue generated will return as subsidies to oil and gas companies and dirty electricity generators. At this rate, most oil companies will be spending barely $1 more per barrel of oil. Polluters should be paying, not being paid off. The only message this will send the market is to “dig, baby, dig.”

Rolling out a plan to create a new, cleaner economy that’s more just and prosperous would convince voters there is an alternative to the oil economy. At that point the NDP could initiate a debate on a moratorium on tar sands development that has been called for by a hundred of North America’s top scientists. Scientific studies show we could get all of our electricity from renewables by 2030, not just 30 percent as Alberta now promises; and an economy entirely run by renewables by 2050. When popular movements can build pressure for such a transition, one thing will be sure: oil barons won’t be hand-clasping on the stage – they’ll be howling from the sidelines.

These movements, with Indigenous communities leading the way, have pushed the Alberta government this far. Now they must push them farther, and faster. It’s not time yet to cheer Alberta’s premier. Demand instead she break the oil barons’ vice-grip on our future.