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Pipeline Versus Rail The False Choice. Paul Blackburn 612-599-5568 [email protected] The Industry and Media Frame Oil Transportation as a Societal Choice Between Pipelines or Rail. THIS IS A FALSE FRAMING. OUTLINE.

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Paul blackburn 612 599 5568 paul@paulblackburn net

Pipeline Versus Rail

The False Choice

Paul Blackburn

612-599-5568

[email protected]


The industry and media frame oil transportation as a societal choice between pipelines or rail

The Industry and Media Frame Oil Transportation as a Societal Choice Between Pipelines or Rail

THIS IS A FALSE FRAMING


Outline

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


The rail versus pipeline framing

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


Rail shipment numbers

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


Crude oil sources

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


Us liquid fuels supply mbpd

US LIQUID FUELS SUPPLY (MBPD)

USEIA AEO2014 Early Release Rollout Presentation

December 16, 2013


Primary sources of new crude oil in market

PRIMARY SOURCES OF NEW CRUDE OIL IN MARKET


Williston basin crude oil forecast

WILLISTON BASINCRUDE OIL FORECAST

North Dakota Pipeline Authority

July 8, 2014


Williston basin typical well production decline

WILLISTON BASIN TYPICAL WELL PRODUCTION DECLINE

North Dakota Industrial Commission


Northern great plains crude oil production typ e

NORTHERN GREAT PLAINS CRUDE OIL PRODUCTION TYPE

USEIA US Crude Oil Production Forecast-Analysis of Crude Types

May 29, 2014


Estimated williston basin oil transport by mode

ESTIMATED WILLISTON BASIN OIL TRANSPORT BY MODE

North Dakota Pipeline Authority

July 8, 2014


Canadian railroad exports

CANADIAN RAILROAD EXPORTS

Source: National Energy Board of Canada


Destination of canadian 2013 crude oil exports

DESTINATION OF CANADIAN 2013 CRUDE OIL EXPORTS

Source: National Energy Board of Canada


Crude oil supply summary

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


Crude oil demand and markets

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


Forecast us petroleum use

FORECAST US PETROLEUM USE


Us petroleum use down 9

US PETROLEUM USE DOWN ~9%

Source: US EIA


Markets demand different types of crude oil

MARKETS DEMAND DIFFERENT TYPES OF CRUDE OIL


Coastal refineries receive almost all overseas imports

COASTAL REFINERIES RECEIVE ALMOST ALL OVERSEAS IMPORTS


Eia refiner acquisition cost

EIA REFINER ACQUISITION COST

North Dakota Pipeline Authority

July 8, 2014


Demand and market summary

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


Transportation options

TRANSPORTATION OPTIONS

  • Existing and planned pipelines

  • Existing and planned railroad infrastructure

  • Williston Basin and western Canadian transportation options


Existing pipelines

EXISTING PIPELINES

NO PIPELINES FROM ND TO WEST COAST

NO PIPELINES FROM ND TO EAST COAST


Crude oil pipelines proposals

CRUDE OIL PIPELINES & PROPOSALS


Williston basin transportation options

WILLISTON BASINTRANSPORTATION OPTIONS

North Dakota Pipeline Authority

July 8, 2014


Us williston basin crude oil export options october 2014

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


Us railroad lines

US RAILROAD LINES


Rail crude oil offloading terminals on the east coast

RAIL CRUDE OIL OFFLOADING TERMINALS ON THE EAST COAST


Rail crude oil offloading terminals o n the west coast

RAIL CRUDE OIL OFFLOADING TERMINALS ON THE WEST COAST


Planned rail upgrades

PLANNED RAIL UPGRADES

  • BNSF is planning $5 billion in track upgrades, including a 60-mile 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


Transportation summary

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


Factors for shipper preference for rail

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


Rail versus pipeline costs

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


Limited support for pipelines from shippers

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


The rail versus pipeline framing1

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


Transportation options conclusion

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


Rail versus and pipeline safety

RAIL VERSUS AND PIPELINE SAFETY


Safety depends on metric

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


Better framing

BETTER FRAMING

The “which is safer” debate detracts from more important debates, including:

  • how to make each as safe as possible, and

  • how to reduce crude oil demand and therefore shipments


Underlying challenges common to both rail and pipeline safety

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


Railroad safety

RAILROAD SAFETY


Derailments

DERAILMENTS


Railroad safety needs

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


Tank car safety design

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


Track inspection and maintenance

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


Improved regulation of short line track

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


Crew size

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


Positive train control

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


Route selection

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


Emergency and spill cleanup response

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


Cargo information disclosure

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


Pipeline safety

PIPELINE SAFETY


Pipeline safety needs

PIPELINE SAFETY NEEDS

  • Increased inspection and enforcement

  • More knowledge about excavation damage

  • Increased use of automatic and remote-controlled valves

  • Improved integrity management

  • Increased public information

  • Standardized leak detection requirements

  • Spill response capabilities for submerged oil

  • Regulation of gathering lines

  • Maintenance of cover


Increased inspection and enforcement

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


Excavation damage

EXCAVATION DAMAGE

  • Lack of tracking and analysis of incidents

  • PHMSA has not yet completed report required by 2011 legislation


Automatic and remote controlled valves

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


Improved integrity management

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


Increased public information

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


Standardized leak detection

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


Submerged oil

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


Maintenance of cover

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


Conservation the safest and best option for consumers

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


Thank you

Thank you!


Paul blackburn 612 599 5568 paul paulblackburn

Paul Blackburn

PO Box 17234

Minneapolis, MN 55417

612-599-5568

[email protected]


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