Train explosions prompt regulator warning on Bakken oil flammability

By Zain Shauk and Collin Eaton

HOUSTON — Oil moving out of the booming Bakken Shale play in North Dakota and Montana may be more flammable than traditional heavy crude oil, the nation’s pipeline regulator warned Thursday.

The Pipeline and Hazardous Materials Safety Administration issued a safety alert cautioning of the potential danger following three derailments of crude from the Bakken in 2013, which included massive explosions. An incident on Monday in North Dakota sent towering fireballs into the air and caused local evacuations. A derailment in Canada leveled part of a town and caused 47 deaths.

“Based upon preliminary inspections conducted after recent rail derailments in North Dakota, Alabama and Lac-Megantic, Quebec involving Bakken crude oil, PHMSA is reinforcing the requirement to properly test, characterize, classify, and where appropriate, sufficiently degasify hazardous materials prior to and during transportation,” the agency said.

Growing trend: Rail explosions won’t curb soaring oil shipments

The agency said that the quality of light sweet crude oil from the Bakken should be categorized in one of two groups of products, including one for materials that have a low boiling point.

“This means the materials pose significant fire risk if released from the package in an accident,” the agency said.

Reducing risk

Light, sweet crude oil generally has higher levels of lighter hydrocarbons, which have a tendency to become gaseous and are more easily flammable, said Ramanan Krishnamoorti, a professor of engineering and chief energy officer at the University of Houston. Analysis of oil from the Bakken Shale shows high levels of light hydrocarbons like propane, butane and pentane, which are highly flammable, Krishnamoorti said.

The composition of the crude is similar to other types of light crude oil, he said. Heavy crude oil, such as that from Canada’s oil sands fields, is much less flammable.

“It’s comparable to things that you would get out of the Eagle Ford (Shale play in Texas),” Krishnamoorti said.

Companies could reduce the risks involved with moving the oil by putting it through an additional processing step before loading it onto rail cars, he said. That step would separate out some of the lighter hydrocarbons that could become gaseous and more easily flammable in the incident of a crash or derailment, Krishnamoorti said.

“Perhaps just adding an extra separating step might help lower the gas or vapor concentration, or the vapor forming components, and that can automatically lower the flammability of the crude,” he said.

Additionally, rail cars could add valves that would allow more vapor to be released from tanks, lowering their flammability, he said. Existing regulations could mandate those steps, depending on how the oil is categorized before it is loaded onto cars and shipped, Krishnamoorti said.

The Pipeline and Hazardous Materials Safety Administration did not respond to an inquiry about requirements surrounding the regulations and whether any rail shipments have improperly labeled oil from the Bakken Shale.

While more rigorous testing is justified after the accidents, “we have no way of knowing what other crudes, such as oil from older, non-Bakken wells, might have been blended with true Bakken oil, or otherwise how the oil has been handled or loaded” after it was sold, Warren Henry, vice president of investor relations for Continental Resources, said in an emailed statement. Continental Resources is the largest oil producer in the Bakken.

Rail’s rise

Rail shipments of crude have soared from 18,000 barrels a day in 2008, before the shale boom began, to 425,000 barrels a day in 2012, according to EY Oil & Gas. They are still on the rise, with rail shipments of oil and petroleum products jumping 31 percent in 2013, according to the Association of American Railroads.

Most of the oil shipped has been light sweet crude produced from wells in shale plays that do not have access to pipelines. In the past two years, the rise in rail shipments have given oil producers from North Dakota to South Texas a new way to get the stranded oil to more profitable markets on the East and West Coasts, where buyers already pay for higher-priced Brent crude.

“At the end of the day, the accident is going to be a setback, but I think it will likely manifest itself through higher transportation costs” that come with tanker upgrades, said Brian Velie, an analyst with Capital One Southcoast.

“I think they’re going to have to decide what the right equipment to safely haul this material is, but it doesn’t change” how important the rail industry has been to producers in the Bakken in recent years, he said.

As of the third quarter of 2013, publicly-traded oil producers, including Continental Resources and Whiting Petroleum, leased about 7,400 net acres and pumped oil from more than 6,600 wells in the Bakken Shale, according to data compiled by Bloomberg.

Meanwhile, the Bakken’s daily pipeline capacity reached 500,000 barrels in 2013 while the region produced more than 1 million barrels per day, making the North Dakota play highly dependent on rail, said Jeff Dietert, an analyst with Houston-based investment bank Simmons & Co.

Rail vs. pipelines

Oil producers often are attracted to rail’s lower up-front costs, shorter transportation contracts and flexibility to reach several refining markets, even though over the long-term pipelines are “comfortably” cheaper than rail shipments, Dietert said. Rail shipments out of the Bakken have crept up to about 600,000 barrels per day, according to Bloomberg.

In late 2012, pipeline operator Oneok Inc. canceled plans for a $1.8 billion pipeline from the Bakken to the Cushing, Okla. oil hub after it was clear that producers preferred railways that arrived at higher-paying markets.

“Rail is about $16 a barrel more economic than piping in the current environment,” said Eli Kantor, an analyst at Iberia Capital Partners. If regulators decide to require reductions in rail shipments from the Bakken, it could be a boon to pipeline operators in the region but it could hurt oil producers on transportation pricing, Kantor said.

Railway response

The Pipeline and Hazardous Materials Safety Administration said that properly characterizing the oil and its properties could help improve awareness of the risks involved in its transportation, or in the case of an accident. Properly labeling the oil also could ensure that it is moved and transported properly, the agency said.

BNSF Railway, which owns a train that was involved with a derailment and explosion of crude in North Dakota on Monday, said it supported the call for increased attention to labeling crude for transport.

“Proper classification and labeling of any hazardous material is a transportation requirement the rail industry supports to ensure the products are shipped in the appropriate equipment,” BNSF spokesman Steven Forsberg said in an email.

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