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The Bakken Oil Boom Is Facing A New Bottleneck


Bakken drillers could struggle to grow oil production as they may soon run into transportation bottlenecks.

The latest snag comes from a new law in Washington State, set to take effect at the start of 2020, that would prevent refineries in the state from unloading oil from a rail car that has a Reid vapor pressure over 9 psi. That metric is a measurement of volatility in the oil. Importantly, a lot of oil from the Bakken has vapor pressure over that threshold.

The law is aimed at reducing the risk of explosive train derailments that reached epidemic levels earlier this decade. Most infamously, the 2013 Lac-Mégantic, Quebec derailment and explosion leveled the town, killing 47 people. But that was not the only one. As the shale frenzy took off in the 2010s, oil production outstripped the ability to move it, and the industry began to ship oil in ever-increasing amounts on flimsy railcars. Explosive derailments hit Virginia, West Virginia, Illinois, North Dakota, Oregon, Ontario, among other places.

There are multiple reasons why trains kept derailing, as Justin Mikulka, an investigative journalist, details in his new book, “Bomb Trains,” a comprehensive account of the accidents and their causes. For instance, oil is often shipped on trains that use braking systems that haven’t changed much since the 19th century. Also, while the industry is phasing out the use of the old DOT-111 train cars, which have been likened to “tin cans” carrying explosive oil, new cars that were supposed to be safer have had their own problems. A June 2018 derailment in Iowa, involving the supposedly safer DOT-117R design, saw at least 30 railcars derailed and 14 of them leaked around 230,000 gallons of oil.

Moreover there has been very little action from federal regulators despite the string of explosive incidents. A few safety regulations imposed during the Obama era – that oil trains have two-person crews, and a requirement that oil trains have modern electronically controlled pneumatic (ECP) braking systems by 2021 – were repealed by the Trump administration.

But another big reason why some of the derailments were so explosive was because of the presence of natural gas liquids. That is particularly true for oil coming from the Bakken, the source of a lot of oil-by-rail shipments. NGLs such as butane or propane can readily ignite if a train derails, and their presence in the oil makes it rail shipments a dangerous proposition.

Those liquids could be removed in order to make the oil safer to ship in a process called “stabilization,” but that would require additional costs that companies do not want to take on. “[Much like the issue with pipelines, building the necessary stabilization capacity in North Dakota would take years and potentially billions of dollars,” Mikulka wrote in his book.

Bakken oil shipped along with the array of natural gas liquids carries a much higher Reid vapor pressure than it otherwise would if the trains were holding just crude oil. For instance, the oil that exploded in Lac-Mégantic had “volatility comparable to that of gasoline,” an investigation by the Canadian government found after the disaster. The Reid vapor pressure for the oil that exploded in Lac-Mégantic was just above 9.0 psi.

In 2015, a derailed train exploded in Mount Carbon, West Virginia. That train was carrying oil with a vapor pressure of 13.9 psi. The Lynchburg, VA derailment and explosion in 2015 had oil with a psi of 14.3.

With an eye on the volatility of oil carrying a high volume of NGLs, Washington State put limits on refineries unloading oil with a psi of 9.0 or higher.

Lynn Helms, North Dakota’s director of the North Dakota Department of Mineral Resources, said that lowering oil below that threshold would impact profitability for Bakken drillers. If they had to lower pressure, they would have to remove butane from the crude stream, which would cut into profits. Helms said the extra cost could disrupt 150,000-200,000 bpd of Bakken oil shipments.

As a result, North Dakota sent a petition to the U.S. Pipeline and Hazardous Materials Safety Administration (PHMSA), asking it to use federal authority to block the law in Washington State because it would essentially put a limit on the volume of crude-by-rail shipments.

“PHMSA has full regulatory authority over crude-by-rail shipments and what’s considered hazardous and what’s not and how it’s transported and all that,” Lynn Helms, North Dakota’s top oil regulator, told reporters at a press briefing on July 16.

But after a long list of explosions in recent years, would Washington’s law reduce the risk from oil-by-rail shipments? “It should be an excellent start,” Mikulka told in an email. “The industry requires vapor pressures of 9psi for pipelines and ocean going tankers. The way to achieve the lower vapor pressure is by removing the volatile NGL components that make it explosive.”

Notably, Washington State’s law only hits refineries that increase their shipments by 10 percent above 2018 levels. In other words, it won’t block rail shipments into Washington if volumes stay at 2018 levels, but the law could put an upper limit on what refiners are allowed to import by rail. In the first quarter of 2019, roughly 175,000 bpd of oil was shipped into Washington from out of state. Nearly 95 percent of it came from North Dakota.

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Bakken shale drillers, already rocked by low oil prices and struggling to turn a profit, could be negatively impacted by Washington’s law. While they could look elsewhere to sell additional barrels of oil, they might face steeper discounts. The explosion at the Philadelphia Energy Solutions Refinery from a few weeks ago removed another major source of oil-by-rail shipments for the Bakken. That alone could impose a $3 to $4 per barrel discount on a portion of oil coming from the Bakken, according to North Dakota Mineral Resources Director Lynn Helms.

As Mikulka notes in his book, the Trump administration has done little on the regulatory front as far as oil-by-rail shipments go, but the few actions the government has taken involved rolling back some safety standards. He expects the administration to side with North Dakota on this issue, but noted that such a decision would be the subject of legal challenges.

The question is important because crude-by-rail shipments are on the rise. After declining following the oil bust in 2015-2016, shipments began to increase again late last year. The U.S. shipped around 620,000 bpd by rail in the first quarter, up from about 450,000 bpd in the same period a year earlier. “This issue certainly isn’t going away any time soon,” Mikulka said.

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20 Comments on "The Bakken Oil Boom Is Facing A New Bottleneck"

  1. ANAL REAPER on Fri, 2nd Aug 2019 9:29 am 

    There is a bottleneck in my pants.

    Who wants to come REAP it?

    Fucking faggots.

    Fuck Davy, Juan and all you other fucking gook chinks too. GO grow my rice.

    Sing song ching chong ping pong!

  2. JuanP sock fraud on Fri, 2nd Aug 2019 9:31 am 

    ANAL REAPER on Fri, 2nd Aug 2019 9:29 am
    There is a bottleneck in my pants.

  3. Richard on Fri, 2nd Aug 2019 10:02 am 

    You are such a fool.

  4. Duncan Idaho on Fri, 2nd Aug 2019 10:08 am 

    The Fat Boy has brought on the correction at the Dog Track.
    Let’s see where this heads, ok proletarians?

  5. Davy sock fraud on Fri, 2nd Aug 2019 11:12 am 

    JuanP sock fraud on Fri, 2nd Aug 2019 9:31 am


  6. Robert Inget on Fri, 2nd Aug 2019 12:30 pm 

    Dan Tsubouchi blog on Permian


    Are We Seeing Pieces of The Puzzle To Support Saudi View Permian Reaches Peak Supply Years Earlier Than Most Expect?

    We saw some key producer Q2 disclosures and analyst comments that should ultimately lead to a pull back on some (not all) of the key inputs to any Permian Basin oil forecast model and these models bringing forward the time when the Permian reaches peak/plateau oil. The Permian oil growth has been the disrupter to global oil markets and no one doubts there will be strong Permian oil growth in 2019 and 2020. Looking to mid/long term, markets generally expect solid US oil growth (driven by the Permian) to continue for several years. But we expect the implications of this week’s Permian insights will lead to a review and pull back to some (not all) of the inputs to their model forecasts. These input questions will inevitably be the #1 focus issue for oil markets/capital providers for H2/19 and 2020 as they try to figure out if the implications mean (i) Saudi Arabia is directionally right (see our July 3, 2019 blog) that Permian oil will reach peak oil supply years earlier than most expect and (ii) Exxon is right (see our June 20, 2019 blog) with their implied 7% decline rate in overall global oil supply [….]

    ‘Permian going down for the count’ (Inget)

    The entire business model was flawed from the outset. That model consisted of drilling 5 million dollar wells in rotation. As one pooped out
    another was drilled showing good returns hiding the fact that the five million $ on well #1 are unrecoverable. The same story for wells #2 to #10. Each time investors are told profits were just around the corner.

    That ‘corner’ turns into a circle of losses.

  7. Robert Inget on Fri, 2nd Aug 2019 1:45 pm 

    As for Bakken, I’ve been harping on the fact that
    shale, for the most part are half condensates.
    IOW’s not pure crude oil. Not just ‘light’ oil but as much as half liquid natural gasses making them far more explosive prone.

  8. Anonymouse on Fri, 2nd Aug 2019 9:23 pm 

    Seeing how the Bakken is basically an oil industry bubble, that just happens to produce a some low-net energy oil-like fuels as a byproduct, then why would this guy, or anyone be so concerned about transportation bottlenecks? The dodgy economics and geology of ‘uS shale’ will take care of any so-called bottlenecks all by itself. As the shale ‘gushers’ all turn into shale dribbles, the transportation ‘bottleneck’ becomes a problem that solves itself. All that is needed , is time.

  9. Duncan Idaho on Fri, 2nd Aug 2019 9:35 pm 

    Too stupid for even the Trump clown show?
    Trump pick for national intelligence director is withdrawing
    (its getting harder to find clueless psychopaths?)

  10. Robert Inget on Sat, 3rd Aug 2019 10:18 am 

    COP flaring 100% of NG

    This is from Raja Sarkar on COP.

    COP Q2
    L48 yoy Crude +23.5%
    NGL +12%
    NG 0%
    Capex +7.7%
    AdjErn -20%

    Flaring 100% NG, 50%+NGL, to grow crude

    Even Conoco gave up on trying to market natural gas.

    Here’s hoping COP decision makers rot in profit Hell.

  11. majece majece on Sat, 3rd Aug 2019 11:07 am 

    I think that on you will get info about the Best Free Parental Control Apps for Android. It’s really important to know in modern world

  12. Davy on Sat, 3rd Aug 2019 11:23 am 

    I don’t have an Android. I have an IPhone dumbass.


  13. Robert Inget on Sat, 3rd Aug 2019 11:43 am 

    Who would argue, Climate Change, its effects,
    is the greatest danger facing our planet’s populations? Just Twenty Percent of Americans, that’s who. IOW’s, Our Great Leader is counting on 20 something % of voters to reelect Himself.

    Oh, no matter what happens current civilizations, the planet will still be around for another billion years +/-.

    In fewer than a hundred years cities will again begin to take form. We can only hope future human generations learn from out mega mistakes.

    History tells us, humans are impossible to wipe out entirely.

    There will be survivors.

  14. tommytommywantshismommy on Sat, 3rd Aug 2019 12:10 pm 

    That oil will dry up in the years ahead reason to fix anything. Those rail lines can be used in the future to ship trains of Teslas to the masses ..millions of units of model 3s and S’s… Utopia where robots do all the work and we can sit around and yell at each other all day on social media.

  15. JuanP on Sat, 3rd Aug 2019 12:28 pm 

    I am an Android.”

  16. JuanP sock fraud on Sat, 3rd Aug 2019 12:29 pm 

    tommytommywantshismommy on Sat, 3rd Aug 2019 12:10 pm

  17. Davy on Sat, 3rd Aug 2019 1:23 pm 

    I am an Idiot

  18. JuanP on Sat, 3rd Aug 2019 1:28 pm 

    I am a figment of dumbass Davy’s imagination.

  19. juanpee has lost his shit on Sat, 3rd Aug 2019 3:02 pm 

    Davy on Sat, 3rd Aug 2019 1:23 pm

    I am an Idiot

    JuanP on Sat, 3rd Aug 2019 1:28 pm

    I am a figment of dumbass Davy’s imagination.

  20. Davy has lost his turd on Sat, 3rd Aug 2019 3:35 pm 

    Davy has lost his turd on Sat, 3rd Aug 2019 3:02 pm

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