Spike in oil-by-rail fueled by regulatory delays, experts say

WASHINGTON — Rapidly developing oil and gas production in North Dakota, Texas and other states is outpacing the construction of new pipelines and other infrastructure to carry those fuels to market, energy experts and former government officials warned Thursday.

A white paper released by the United Transportation Advisers consultancy blamed regulatory delays for discouraging swift pipeline construction — and ultimately encouraging oil producers to begin moving increasing amounts of crude by less-efficient rail.

According to the rail industry, 400,000 carloads of crude traveled by rail in 2013, compared to just 10,000 four years earlier. In North Dakota, as much as 90 percent of the oil produced from the Bakken formation this year will be transported by rail, up from 60 percent last year, according to forecasts cited by the white paper.

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Increased oil-by-rail traffic — to supplant insufficient pipelines — raises the risks of catastrophic accidents, said the report’s authors, Nixon White House energy adviser Jack Rafuse and former Unocal Pipeline Vice President of Vern Grimshaw.

“Delays in the regulatory process are forcing energy producers to forgo the use of pipelines in lieu of less-efficient shipping modes, which in turn could lead to an increase of avoidable accidents,” the pair said. “By failing to act, regulators are effectively mandating inefficiencies into the system, which disrupt the market and stifle investment and development.”

The solution, they say, is accelerating regulatory reviews and approvals and allowing room for new technologies to more swiftly be incorporated. Specifically, Rafuse and Grimshaw urge:

  • The Department of Transportation to finish a broad review of hazardous liquids and natural gas pipeline regulations that was first announced more than three years ago.
  • The federal government to adopt requirements for new leak-detection and remote-controlled shutoff valves that were mandated by a pipeline safety law enacted in January 2012. Key elements of the law have yet to be implemented, the paper says.
  • Better coordination between government regulators and the oil and pipeline industry.
  • Regulators to rapidly incorporate advanced technology into pipeline rules. Promising advancements — that have the potential to improve leak detection or speed up the construction of new pipelines — “may be facing unnecessary regulatory hurdles,” Rafuse and Grimshaw write.

Brigham McCown, a former administrator of the Pipeline and Hazardous Materials Safety Administration, said composite piping isn’t able to realize its full potential because most federal and state regulators limit it to relatively low-pressure lines, despite research indicating it could safely be expanded and widespread use outside of the U.S.

The nation’s 2.6 million miles of existing interstate pipelines were largely built before today’s oil and gas boom, with flows generally headed north and east. That doesn’t mesh well with the location of new drilling hotbeds in North Dakota and Pennsylvania.

Related story: Kinder Morgan exec says pipeline network needs realignment

The challenge isn’t just at the regulatory level. Pipeline companies may be reluctant to invest in new construction for projects that may only be used for a few years, as the amount of oil and gas harvested from dense rock formations quickly drops.

Previously, “you had the luxury of years to sort of put (a project) together, and the expectation was that it was going to be in service for a long time,” McCown said. “One of the issues with the tight gas or the shale plays is the fields can be depleted more quickly. That requires you to . . . lay lines more quickly and reach (a permitting) decision more quickly.”

The most high-profile example of a pipeline ensnared by regulatory issues is Keystone XL, the TransCanada Corp. project that would transport oil from Alberta to Cushing, Okla. TransCanada first asked the State Department for permission to build the pipeline in 2008, though it submitted a new application in May 2012 after revising the route.

Sarah Ladislaw, energy and national security program director at the Center for Strategic and International Studies, said the U.S. is increasingly getting “wrapped around the axle” on single energy issues, like Keystone XL. Speaking at an energy event hosted by Politico, Ladislaw warned that “a lot of time and intelligence is wasted . . . at a time when the energy industry in the United States is fundamentally more dynamic than it has been in a really long time.”