North Dakota Bakken Crude Oil

As of the moment of the writing of this post the West Texas Intermediate Benchmark has now crossed over the price of North Sea Brent Benchmark.

WTI is trading around $108.01 and Brent is at about $107.79.

From The Portland Press Herald:

The Portland Press Herald wrote:Deadly derailment won't stop oil on trains

A fiery and fatal train derailment earlier this month in Quebec, near the Maine border, highlighted the danger of moving oil by rail. But while the practice could be made safer, it won't be stopped in its tracks. This year, more trains carrying crude will chug across North America than ever before — nearly 1,400 carloads a day. In 2009, there were just 31 carloads a day.
. . .
"Stopping crude by rail would be tantamount to stopping oil production in a lot of the places it is now being produced," says Michael Levi, who heads the Council on Foreign Relations' program on energy security and climate change.

Even safety experts worried about the dangers of shipping oil by rail acknowledge that the safety record of railroads is good — and improving. The scope of the Lac-Megantic disaster, which is still under investigation, appears to have been the result of uniquely bad circumstances, these experts say.

Read more at: http://www.pressherald.com/news/Deadly- ... rails.html" onclick="window.open(this.href);return false;

A remarkably pragmatic editorial. Good for them for acknowledging the unstoppable.

While of course there cokuld be better ways to strengthen transportation safety other than by incidents such as Megantic, the Wall Street Journal repoorts today that already steps are in the works to enhance the safety of tank cars and handling crude oil:

http://online.wsj.com/article/SB1000142 ... 16964.html" onclick="window.open(this.href);return false;

Brief passage:

• In the wake of the deadly oil-train derailment in Quebec this month, the U.S. rail industry is grappling with a safety problem regulators have warned about for years: tank cars that rupture during accidents.
  
  Two years ago, at the urging of safety investigators, the industry adopted tougher standards. They required newly manufactured tank cars to have more puncture-resistant tanks and tougher shields at the front and back of each car.
  
  It considered retrofitting older tank cars, but didn't. Today, only about 23% of the nation's roughly 310,000 tankers meet the new standards.
  
  Now, the Federal Railroad Administration and the Pipeline and Hazardous Materials Safety Administration have announced a comprehensive review of hazardous-material transport and set a public meeting late next month; the Association of American Railroads expects tank cars to be part of that agenda.

Unfortunately, however, this passage suggests that Megantic was an incident waiting to happen.

While incidents such as Chatsworth and Megantic have shown a need for corrective action, Megantic appears to be measured and pragmatic (Chatsworth with the PTC mandate; 'overreactive'). Happily my earlier concerns that there would be outcry to phase out all oil shipments by rail in favor of pipelines are proving to be unfounded.

All improvements in transportation safety have come at the cost of blood (Asiana 216 no exception; there had to be a human factor for a perfectly airworthy aircraft to land short of a runway under ideal flight conditions) ; we can only hope that the 47 fatalities at Megantic will not have been in vain.

Following the Exxon Valdez disaster in Alaska, Congress passed the Oil Pollution Act. It required that all new oil tankers have double hull construction and all single-hull tankers were to be phased out of operation in 25 years. The 25 years will be up in 2015.

We may see something similar as a result of Lac Megantic. Since October 1, 2011 DOT has required all new tank cars for transporting ethanol or crude oil to have
–Increase head and shell thickness
–Normalized steel
–½-inch thick head shield
–Top fitting protection
http://www.ntsb.gov/news/events/2012/ch ... pleted.pdf" onclick="window.open(this.href);return false;

As a result of Lac Megantic, regulators may require phase-out or retrofit of existing tank cars over some period of time. We may even see the Canadians take the lead on regulating the North American rail fleet in this case.

Meanwhile, there are normal maintenance issues that need to be addressed.

And in North Dakota alone, there are some 2,500-3,000 bad order tank cars per month. Clearly North Dakota is a hotspot for maintenance since that’s where a majority of the new cars are operating and/or headed. And because it’s such a new phenomenon, North Dakota has not been a hot spot for maintenance until now.

http://www.rbnenergy.com/miles-and-mile ... ail-market" onclick="window.open(this.href);return false;

From The Portland Press Herald:

The Portland Press Herald wrote:Obama administration delays oil train safety rules

The Obama administration has delayed by nearly a year a plan to boost safety standards for the type of rail car involved in a fiery explosion that killed at least 47 people in Canada this month.
. . .
A proposed rule to beef up rail-car safety was initially scheduled to be put in place last October, but it has been delayed until late September at the earliest. A final rule is not expected until next year.
. . .
Sen. Charles Schumer, D-N.Y., is urging the Obama administration to phase-out DOT-111 tank cars or require freight rail carriers to retrofit them to prevent potential explosions or spills. Schumer described the DOT-111 cars as "flawed, out-of-date and a factor in hazardous material spills during derailments," such as the one in Quebec.
. . .
A spokeswoman for the American Association of Railroads, which represents the rail industry, said the group shares Schumer's belief in putting safety first.

"If safer and better DOT-111s can be had, then it makes good sense to ensure that the design and standards that these cars are built to, must be tougher than the federal standards that exist today," said spokeswoman Patricia Reilly.

Read more at: http://www.pressherald.com/news/Obama-a ... rules.html" onclick="window.open(this.href);return false;

The rail industry estimates that retrofitting older cars would cost at least $1 billion, not including lost-service time for cars removed from the fleet for repairs. "By comparison, derailment costs totaled approximately $64 million over the past five years," the Association of American Railroads said in a 2011 petition to the federal government.

http://billingsgazette.com/news/state-a ... z2aTzjDuPK" onclick="window.open(this.href);return false;

After Lac Megantic, that math is going to change.

The AP had reviewed 20 years of federal rail accident data involving DOT-111 cars used to haul ethanol and found that the cars had been breached in at least 40 serious accidents since 2000. In the previous decade, there were just two breaches.

Quebec environment minister Yves-François Blanchet has ordered the companies behind the Lac-Mégantic rail disaster to pay up.

At issue was the $4 million forked over by the town of Lac-Mégantic to cover cleanup costs. The town dug deep into its coffers for the cash when work crews threatened to walk off the job over fears MM&A wouldn't pay them.

http://www.cbc.ca/news/canada/montreal/ ... eanup.html" onclick="window.open(this.href);return false;

That's just the tip of the iceberg. Attorneys are estimating that it may take 15 years to resolve all the claims that may arise from the accident.

Meanwhile, on the west coast,

Six days after it was approved, the Port of Vancouver released a 42-acre lease with Tesoro-Savage for an oil terminal that could process up to 360,000 barrels a day of North Dakota crude.

http://www.oregonlive.com/environment/i ... s_oil.html" onclick="window.open(this.href);return false;

Today, the Wall Street Journal has printed a guest column that, even if contrary to my interests as a railroad industry stakeholder, I consider to be balanced and objective. The attributed authors are mayors of two municipalites on-line to former E,J, & E which has now become a busy Canadian National line:

http://online.wsj.com/article/SB1000142 ... 64496.html" onclick="window.open(this.href);return false;

Brief passage:

• Enough stalling. As the tragedy in Lac-Mégantic shows, regulators need to put the brakes on these DOT 111 tank cars. With the upsurge in the railroad industry's service as a rolling pipeline for crude oil, the use of defective tank cars is unconscionable.
  
  Opponents of retrofitting argue that it's too costly—at $15,000 per tank car—for a total fleet retrofit, which would cost the rail industry more than $1 billion. But the existing fleet has a life expectancy of at least 31 years, so the actual cost is less than $500 per year per tank car.
  
  Furthermore, the industry is not looking at its civil liability for victims of these disasters and balancing those costs against the cost of a retrofit mandate. In the Rockford derailment, Canadian National Railway paid over $36 million to settle the lawsuit brought by the family of only one victim. It isn't hard to do the math on what it will cost Rail World Inc. to settle the claims from Lac-Mégantic, let alone what it will cost the industry to settle future catastrophic derailments. The plaintiffs bar will not miss the opportunity to secure higher awards for future victims of derailments based on a public record demonstrating that industry chose to forgo fixing tank cars known to be dangerous

I think what is significant here is that these two public officials, who would just as soon have the railroad go away, accept that shipment of oil by rail is here to stay and that retrofitting earlier tank cars could make economic sense if there is to be another Megantic.

I bet insurance rates on the old DOT 111 cars are rising.

In Montreal court, the Canadian arm of Montreal, Maine & Atlantic filed a petition seeking relief under the Companies’ Creditors Arrangement Act, while in Maine, the company’s U.S. branch filed for Chapter 11 bankruptcy protection.

In a petition submitted in U.S. court, the company listed having between $50 million and $100 million in estimated assets.

“It has become apparent that the obligations of both companies now exceed the value of their assets, including prospective insurance recoveries, as a direct result of the tragic derailment at Lac-Mégantic, Que. on July 6th,” reads a statement by company chairman Ed Burkhardt.

http://www.thestar.com/news/canada/2013 ... uptcy.html" onclick="window.open(this.href);return false;

Gilbert B Norman wrote:I think what is significant here is that these two public officials, who would just as soon have the railroad go away, accept that shipment of oil by rail is here to stay and that retrofitting earlier tank cars could make economic sense if there is to be another Megantic.

In a nutshell the residents of Lac-Megantic have already said as much themselves. They can't afford to have the railroad go away, they need it for their economy. That being the case they merely want safety improvements (obviously a very reasonable sentiment).

[quote="jstolberg"]I bet insurance rates on the old DOT 111 cars are rising.

Do you think that the insurance rates for Cargill's DOT 111 cars used to haul High-Fructose Corn Syrup will really rise? How about those that are used to haul rendered lard, or industrial molasses. More likely you will see a new classification for cars carrying flammable material.

A front page article in Modnay's Journal should be of interest to anyone who follow crude oil transport affairs - mode notwithstanding:

http://online.wsj.com/article/SB1000142 ... 17418.html" onclick="window.open(this.href);return false;

Brief passage:

• In North Dakota, trains move 69% of the state's 800,000 barrels a day of crude, according to state figures. Energy companies say they value rail's ability to deliver crude to the highest-paying markets.
  
  But the deadly runaway crude train crash in Canada's Quebec province in July, which incinerated a small town and killed at least 47 people, highlighted the risks of the mile-long crude trains crisscrossing the country. The U.S. government is imposing new regulations on oil shipments by rail.
  
  Some state regulators wonder if their local efforts leave them prepared for a train accident, in part because federal railroad rules pre-empt state and local control over trains.
  
  In Washington state, "we can't say [to train operators] you have to have oil-spill contingency plans in order to operate," says Curt Hart, a spokesman for the state's Department of Ecology. "We do that for oil tankers, barges, large commercial vessels and refineries."

This article appears to me as a 'neutral'. It certainly suggests in its whole, that the transportation industry is in an 'all hands on deck' situation to handle the existing production, and that even if planned pipeline construction, such as the controversial Keystone XL, moves forth, there will still be enough crude remaining to have rails 'in the business'.

Otherwise, I present this material as 'we report, you decide'.

I think a few of the senior members of our little fraternity might find the link below interesting:

http://www.theoildrum.com/node/8294" onclick="window.open(this.href);return false;

The name of an old friend of ours turns up in the comments, beginning with a post on 8/28/2011, by "tahoevalleylines"

Overall I think the change to regulations will be minimal due to the perception of MMA(C) as an entity that operated in an unusually risk tolerant fashion.

MMA's style of operations (in particular one man crews) will likely never be allowed again but for the most part the remaining changes won't affect railroads all that much since the new practices are likely to be in line with their current operations.

I also believe this situation is unlikely to bring liability premiums up all that much on railroads that have operating rules with better margins of safety, but that's just my guess that the underwriters take operational practices into consideration when writing coverage.