Pipeline Versus Rail
The False Choice
Paul Blackburn
612-599-5568
paul@paulblackburn.net
1
The Industry and Media
Frame Oil Transportation as a
Societal Choice
Between Pipelines or Rail
THIS IS A FALSE FRAMING
2
OUTLINE
• The North American crude oil transportation
market: supply and demand
• Existing transportation options: pipeline, rail,
barge/ship
• Transportation choices
• Transportation safety
• The correct frame: make transportation as
safe as possible and conserve oil to reduce the
need to transport it
3
THE RAIL VERSUS PIPELINE FRAMING
• Crude oil is moving by rail because there is
insufficient pipeline capacity
• Pipeline transportation is cheaper, therefore if
more pipelines are built shippers will switch to
pipelines and railroads will become less
congested
• Pipelines are safer than railroads
• Therefore, citizens should support pipelines
4
RAIL SHIPMENT NUMBERS
• About 939,000 bpd of crude oil is being hauled each
day on railroads throughout the US
• Railroad congestion is localized as oil transportation
makes up only about 3.5% of railroad shipments
• In 2013, railroads carried about 395,000 more tank cars
of crude than in 2005, but about 1.3 million fewer cars
of coal
• BNSF estimates that the amount of farm commodities
it shipped from North Dakota increased 50 percent
from 2009 to 2013
• The rail congestion problem is limited to particular
bottlenecks in the northern plains caused by increased
grain and oil shipments
5
CRUDE OIL SOURCES
• This presentation focuses on sources of oil
involved in the rail versus pipeline debate
• At issue is landlocked crude oil remote from
refining centers
• For practical purposes, the source of conflict
relates to transportation of crude oil from the US
Williston Basin and Canadian Tar Sands
• Williston oil is mostly light sweet crude oil
• Tar Sands oil is either diluted or undiluted heavy
sour bitumen or medium sweet syncrude
6
US LIQUID FUELS SUPPLY (MBPD)
USEIA AEO2014 Early Release Rollout Presentation
December 16, 2013
7
PRIMARY SOURCES OF
NEW CRUDE OIL IN MARKET
8
WILLISTON BASIN
CRUDE OIL FORECAST
North Dakota Pipeline Authority
July 8, 2014
9
WILLISTON BASIN TYPICAL WELL
PRODUCTION DECLINE
North Dakota Industrial Commission
10
NORTHERN GREAT PLAINS CRUDE OIL
PRODUCTION TYPE
USEIA US Crude Oil Production Forecast-Analysis of Crude Types
May 29, 2014
11
ESTIMATED WILLISTON BASIN
OIL TRANSPORT BY MODE
North Dakota Pipeline Authority
July 8, 2014
12
CANADIAN RAILROAD EXPORTS
Source: National Energy Board of Canada
13
DESTINATION OF CANADIAN
2013 CRUDE OIL EXPORTS
Source: National Energy Board of Canada
14
CRUDE OIL SUPPLY SUMMARY
• Bakken oil is mostly light sweet crude
• Bakken oil production is expected to start declining in
the mid-2020s
• Existing combined rail and pipeline export capacity
from North Dakota far exceeds forecast maximum
production
• In 2013, Williston shippers decreased use of pipelines
in favor of railroads
• Canadian rail exports have been modest at about
160,000 bpd
• 44% of Canadian exports by rail went to the East Coast,
45% to the Gulf Coast
15
CRUDE OIL DEMAND AND MARKETS
• US domestic demand for crude oil is about 9%
below historical highs and is unlikely to increase
substantially
• Increased domestic production reduces imports
or is used to make petroleum products for export
• Refineries are designed to process different types
of crude oils
• Refineries in the Midwest and Gulf Coast
generally refine medium-heavy sour crudes; on
the East and West Coast they process large
amounts of light sweet crude oil
16
FORECAST US PETROLEUM USE
17
US PETROLEUM USE DOWN ~9%
Source: US EIA
18
MARKETS DEMAND DIFFERENT TYPES
OF CRUDE OIL
19
COASTAL REFINERIES RECEIVE
ALMOST ALL OVERSEAS IMPORTS
20
EIA REFINER ACQUISITION COST
North Dakota Pipeline Authority
July 8, 2014
21
DEMAND AND MARKET SUMMARY
• US demand for petroleum fuel has dropped and is not
forecast to increase substantially
• The East Coast is the primary market in the US for
domestic light sweet crude oil
• The Midwest receives almost no overseas imports and
refines mostly heavy to medium sour crude oils
• The Gulf Coast imports little overseas light sweet crude
oil and instead processes overseas medium and heavy
sour crude oil and local domestic oil (off-shore,
fracked, and conventional)
• The West Coast imports some light sweet crude oil but
primarily refines a mix of sour crude oils
• East and West Coast refiners pay higher prices
22
TRANSPORTATION OPTIONS
• Existing and planned pipelines
• Existing and planned railroad infrastructure
• Williston Basin and western Canadian
transportation options
23
EXISTING PIPELINES
NO
PIPELINES
FROM ND
TO WEST
COAST
NO
PIPELINES
FROM ND
TO EAST
COAST
24
CRUDE OIL PIPELINES & PROPOSALS
25
WILLISTON BASIN
TRANSPORTATION OPTIONS
North Dakota Pipeline Authority
July 8, 2014
26
US WILLISTON BASIN CRUDE OIL
EXPORT OPTIONS OCTOBER 2014
2014 Pipeline = 705,000 bpd; 2014 Rail = 1,260,000 bpd
North Dakota Pipeline Authority
October 2014
27
US RAILROAD LINES
28
RAIL CRUDE OIL OFFLOADING
TERMINALS ON THE EAST COAST
Operator/ Location
Capacity x000 bpd
In-Service
PBF Energy (refinery)
Delaware City, DE
145
Expandable to 210
Operating Q4 2014
Axeon Specialty Partners (refinery)
Savannah, GA
9
1Q 2014
Axeon Specialty Partners (refinery)
Paulsboro, NJ
Unit train capable
Operating 2014
60-80
Q3 2014
135
Nov 2012
160
2011
80
Expandable to 160
May 2014
Philadelphia Energy Solutions (refinery)
Philadelphia, PA
140
Oct 2013
Plains All American Pipeline Yorktown, VA
60
Dec 2013
Buckeye Partners, L.P.
Perth Amboy, NJ
Buckeye Partners, L.P.
Albany, NY
Global Partners
Albany, NY
Eddystone Rail Company
Philadelphia, PA
Total Potential Capacity
954,000+ bpd
29
RAIL CRUDE OIL OFFLOADING
TERMINALS ON THE WEST COAST
Company
Washington
Shell (refinery)
Anacortes, WA
Tesoro (refinery)
Anacortes, WA
BP (refinery)
Cherry Point/Blaine, WA
Phillips 66 (refinery)
Ferndale, WA
US Oil (refinery)
Tacoma, WA
US Development Group
Grays Harbour, WA
Westway
Grays Harbour, WA
Imperium Renewables
grays Harbour, WA
Global Partners of Massachusetts
Port Westward/Calskanie, WA
Washington potential subtotal
California
Alon USA
Bakersfield, CA
Plains All American
Bakersfield, CA
Valero (refinery)
Benicia, CA
Phillips 66 (refinery)
Santa Maria, CA
California potential subtotal
TOTAL
Capacity X00 bpd
In-Service
50
?
50
2012
60
Q3 2014
small volumes
Expandable to 30
Dec 2014
?
2012
50
2016
27
Q1 2015
?
?
65
expandable to 130
332
Q4 2012
150
Q4 2015
65
Q1 2015
70
Q1 2015
41
Q1 2016
326
658
30
PLANNED RAIL UPGRADES
• BNSF is planning $5 billion in track upgrades, including a 60mile double-track stretch between Glasgow, MT, and Minot,
ND, double track through MN, and multiple meet-pass
sidings
• BNSF customers have invested more than $2 billion in rail
cars and facilities
• As of April 2014, manufacturers had 50,000 crude oil tank
cars on order; up to 10,000 can be built each year
• BNSF mis-forecast service demand and shippers are now
paying the price
• By the end of 2014, BNSF plans to offer service from shale
plays to more than 50 destinations that serve inland and
coastal refineries and ports
• Other railroads are also planning upgrades
31
TRANSPORTATION SUMMARY
• It is not possible to ship crude oil by pipeline from the
Williston Basin to the US East and West Coast, as these
markets are accessible only by rail and/or ship
• No pipelines are planned between the Williston Basin and
the US East and West Coast
• Planned US pipeline expansions go primarily to Oklahoma
and the Gulf Coast which have limited capacity for
additional light sweet crude refining
• Planned Canadian pipeline expansions go to the coasts but
would require shipping by tanker to US refineries and likely
would not serve the Williston Basin
• The oil industry has made substantial investments in
railroad transloading capacity on the East and West Coasts
32
FACTORS FOR SHIPPER
PREFERENCE FOR RAIL
• Williston Basin shippers have stated a preference for
rail and support for pipeline projects is limited
• Rail offers greater flexibility both on the gathering and
delivery side
• Rail has lower capital costs for shippers than pipelines
• Substantial new railroad loading and unloading
infrastructure is planned
• Pipelines require long-term shipping contracts prior to
construction; railroads do not
• Relatively short well life and high production costs in
the Williston Basin means that long-term capital
investments in pipelines may not be worth the risk
33
RAIL VERSUS PIPELINE COSTS
• Rail costs $4 to $10 per barrel more,
depending on the market, but refinery
profitability depends on regional crude oil
price and competing transportation costs
• Rail can transport undiluted bitumen and this
reduces overall transportation costs
substantially
34
LIMITED SUPPORT FOR
PIPELINES FROM SHIPPERS
• Pipeline projects cancelled due to lack of shipper interest
include Dakota Express and Bakken Crude Express
• Of Enbridge’s 185 ND shippers, only 15 even asked for the
Sandpiper Pipeline pro forma TSA
• Shipper protest at FERC:
– “Virtually every governmental study shows that current pipeline
and rail facilities are more than sufficient for the foreseeable
future to transport Bakken crude oil production . . . .”
– “The use of extensive rail transport clearly indicates that the
market regards the availability, pricing and terms of service of
rail transport as equally desirable as the pipeline service . . . .”
• “Crude oil take away capacity is expected to remain
adequate as long as rail deliveries to coastal refineries keep
growing.” Lynn Helms, Director ND Industrial Commission,
9/12/2014
35
THE RAIL VERSUS PIPELINE FRAMING
• Crude oil is moving by rail because there is insufficient
pipeline capacity – for important US markets rail is and
likely will be the preferred or only option
• Pipeline transportation is cheaper – refinery
profitability depends on a number of market factors,
not just transportation cost
• If more pipelines are built shippers will switch to
pipelines and railroads will become less congested
– the relatively short life of Williston Basin wells may not
justify the risk of a long-term pipeline investments
– the market has supported more rail than pipelines
– the railroads are planning expansions to address
congestion
36
TRANSPORTATION OPTIONS
CONCLUSION
• Planned pipeline projects are unlikely to
substantially reduce railroad congestion
because they do not serve the markets served
by railroads
• Ultimately, market forces are driving shippers’
pipeline versus rail decisions and citizens have
little control over this
• Rail transportation of crude oil is likely to
continue
37
RAIL
VERSUS AND
PIPELINE SAFETY
38
SAFETY DEPENDS ON METRIC
• Conventional wisdom is that pipelines are safer
than railroads
• Both the rail and pipeline industries offer
99.99%+ safety numbers, but both have risks
• Rail worse than pipelines for human death and
property destruction
• Rail better than pipelines for amount of oil spilled
and impacts of spill on the natural environment
• Rail worse than pipelines for impact of CO2
released due to normal operations, but both
promote carbon extraction
39
BETTER FRAMING
The “which is safer” debate detracts from more
important debates, including:
1) how to make each as safe as possible, and
2) how to reduce crude oil demand and
therefore shipments
40
UNDERLYING CHALLENGES COMMON
TO BOTH RAIL AND PIPELINE SAFETY
Rail and pipeline safety improvements are both
hampered by:
– A lack of public information leading to limited
proactive citizen involvement and political will
– Insufficient inspection, enforcement, and
regulatory reform power and funding
– Regulatory language and culture that allows
almost complete industry self-regulation in many
safety matters and results in reactive regulation
and hostility to citizen participation
41
RAILROAD SAFETY
42
DERAILMENTS
Location
Date
Lac Mégantic,
Quebec
Gainford,
Alberta
Aliceville,
Alabama
Casselton,
North Dakota
Plaster Rock,
New Brunswick
Philadelphia,
Pennsylvania
Vandergrift,
Pennsylvania
Lynchburg,
Virginia
July 5
2013
October 19
2013
November 8
2013
December 30
2013
January 7
2014
January 20
2014
February 13
2014
April 30
2014
Oil Cars
Derailed
63
4
30
20
5
7
19
15
43
RAILROAD SAFETY NEEDS
• Tank car safety design
• Track inspection and
maintenance
• Increased regulation of short
line track
• Crew size
• Positive train control
• Route selection
• Spill response
• Cargo information disclosure
44
TANK CAR SAFETY DESIGN
• Improvements to DOT-111 rail cars (life 30-40 years)
• ~92,000 tank cars are moving flammable liquids and
~78,000 require retrofitting
• Use only cars designed for explosive liquids
• Head shields, thermal shielding, thicker steel, improved
fittings and couplers, pressure relief valves
• Critical issue is time required
45
TRACK INSPECTION AND
MAINTENANCE
• Track problems cause the most derailments
and result in the worst accidents
• FRA track inspection rules do not consider
population density or sensitive areas
• Voluntary agreement requires 1 additional
internal and 2 geometry inspections per year
for track carrying >20 oil cars
• Installation of test equipment on locomotives
would allow near-continuous monitoring
46
IMPROVED REGULATION
OF SHORT LINE TRACK
• Short line track used for crude oil trains should
be maintained to the same standard as
mainline track
• Lac Mégantic and Aliceville derailments were
on short line track
47
CREW SIZE
• Federal regulations do not specify how
number of crew
• Although many trains carry two crew, the
number should be standardized for crude oil
trains
48
POSITIVE TRAIN CONTROL
• Positive train control means the installation of
equipment that automatically controls trains
to override human error to prevent accidents
• Not expressly required for crude oil trains but
is required on passenger routes and for trains
carry toxic-by-inhalation materials
49
ROUTE SELECTION
• Railroads required to assess route safety for some
hazardous materials, but not crude oil
• Railroads have voluntarily agreed to assess route
safety for crude oil trains
• State and local governments should review railroad
judgments about route safety and require changes
where needed, rather than leave this solely to
railroads
50
EMERGENCY AND
SPILL CLEANUP RESPONSE
• Oil trains currently exempt from preparing and filing
response plans that comply with Oil Pollution Act
requirements, and instead prepare only “basic” plans
• Require that railroads prepare and that federal, state,
and local governments approve response plans
• Fees for local first responder hiring, training and
equipment
• Community notification
51
CARGO INFORMATION DISCLOSURE
• Improve accuracy and first responder access
to train manifests
• Allow community access to information about
types of commodities passing through their
communities to allow emergency planning
52
PIPELINE SAFETY
53
PIPELINE SAFETY NEEDS
• Increased inspection and enforcement
• More knowledge about excavation damage
• Increased use of automatic and remotecontrolled valves
• Improved integrity management
• Increased public information
• Standardized leak detection requirements
• Spill response capabilities for submerged oil
• Regulation of gathering lines
• Maintenance of cover
54
INCREASED INSPECTION
AND ENFORCEMENT
• PHMSA’s authority is limited mostly to paper and
post hoc investigation
• When adjusted for inflation, fines are about the
same as in the 1960s
• Limited number
of actions taken by
PHMSA
55
EXCAVATION DAMAGE
• Lack of tracking and analysis of incidents
• PHMSA has not yet completed report required by
2011 legislation
56
AUTOMATIC AND
REMOTE-CONTROLLED VALVES
•
•
•
•
Issue has been debated for years
Not uniformly required
Oak Ridge study showed effectiveness
In 2010, PHMSA issued Advanced Notice of
Proposed Rulemaking for hazardous liquid
pipelines and received comments, but no
actions since then
57
IMPROVED INTEGRITY MANAGEMENT
• Congress required report on integrity
management in 2011
• NTSB recommended audit of PHMSA’s
performance-based safety programs
• PHMSA issued an ANPRM
• Nothing released to public
58
INCREASED PUBLIC INFORMATION
• The public has no meaningful access to
PHMSA regulatory materials and no
meaningful opportunity to participate in any
pipeline-specific PHMSA regulatory processes
related either to pipeline safety or spill
response
59
STANDARDIZED LEAK DETECTION
• PHMSA has no minimum leak detection
standards
• In 2010, PHMSA issued an ANPRM on leak
detection but has not taken any public steps
since then
60
SUBMERGED OIL
• In 2011 Congress required a study of dilbit,
which spilled and sank in the Kalamazoo River
• Rather than study this material fully, PHMSA
limited the study to whether the risks of dilbit
to pipeline operations was greater than for
conventional crude oil, but did not study the
behavior of dilbit on release
61
MAINTENANCE OF COVER
• Federal regulations require that pipelines be
buried at minimum depths when constructed,
but do not require that pipeline operators
maintain this depth
62
CONSERVATION: THE SAFEST AND
BEST OPTION FOR CONSUMERS
• The differing decreases in petroleum fuel use
among the states indicates that some states
are taking successful actions to promote oil
conservation
• Rather than focus expressly on increasing oil
production, policy makers should encourage
oil conservation, as this provides greater
energy and financial security for Americans
63
Thank you!
64
Paul Blackburn
PO Box 17234
Minneapolis, MN 55417
612-599-5568
paul@paulblackburn.net
65