Volatile
Gases Aren't Removed From
Bakken Shale Crude;
The Regulations Are Silent
By
Russell Gold and Chester Dawson
Updated
July 7, 2014 4:01 p.m. ET
When
energy companies started extracting oil from shale formations in South Texas a
few years ago, they invested hundreds of millions of dollars to make the
volatile crude safer to handle.
In
North Dakota's Bakken Shale oil field, nobody installed the necessary
equipment. The result is that the second-fastest growing source of crude in the
U.S. is producing oil that pipelines often would reject as too dangerous to
transport.
Now
the decision not to build the equipment is coming back to haunt the oil
industry as the federal government seeks to prevent fiery accidents of trains
laden with North Dakota oil. Investigators probing crude-by-rail accidents,
including one a year ago that killed 47 people in Quebec, are trying to
determine why shale oil has proved so combustible—a question that has taken on
growing urgency as rail shipments rise.
Only
one stabilizer, which can remove the most volatile gases before transport, has
been built in North Dakota and it hasn't begun operation, according to a review
by The Wall Street Journal.
A
fireball erupted from an exploding train car after a crash outside Casselton,
N.D., in December. Oil from the state's Bakken Shale isn't stabilized to make
it less volatile.
Stabilizers
use heat and pressure to force light hydrocarbon molecules—including ethane,
butane and propane—to form into vapor and boil out of the liquid crude. The
operation can lower the vapor pressure of crude oil, making it less volatile
and therefore safer to transport by pipeline or rail tank car.
As
the Journal previously reported, oil tapped from shale is generally more
volatile and more similar to jet fuel than traditional crude oil, which has
seldom been linked to explosive accidents. The production of this volatile oil
through hydraulic fracturing has soared, accounting for most of the additional
3 million barrels a day of oil that the U.S. produces today compared with 2009.
The
federal government is weighing whether to require stabilization, holding
high-level meetings with oil executives.
"We
are open to any recommendations with a demonstrated ability to improve safety,
including the stabilizing or further processing Bakken crude," says Sarah
Feinberg, the chief of staff to Transportation Secretary Anthony Foxx.
If
the government mandates the use of stabilizers, companies would have to make
big investments in equipment and might have to slow development of the Bakken
oil field.
Energy
executives point out that neither federal nor state regulations require crude
to be stabilized before it is transported. Some say stabilization is
unnecessary, noting that South Texas produces more of the highly volatile oil
known as condensate.
"There
is nothing wrong with the crude oil" in the Bakken, says Jeff Hume, vice
chairman of Continental Resources Inc., one of the largest crude producers in
North Dakota. "It does not need stabilization."
Robert
Hall, a National Transportation Safety Board director, says the decision on
whether to stabilize is driven by commercial considerations. "The
regulations are silent," he says.
About
a million barrels a day are pumped from the Bakken, an oil field that has grown
so fast that few pipelines exist to transport the crude. Instead, about 630,000
barrels a day travel by train to refineries on the East, West and Gulf coasts,
a trend that is growing because the energy industry has found rail shipments to
be more flexible than fixed pipelines.
Federal
officials have expressed concern that unstabilized Bakken oil has been loaded
onto trains and shipped without proper labeling or handling. Local safety
officials have warned that their communities aren't prepared to handle a
derailment.
The
American Petroleum Institute, a Washington-based lobbying group for the oil
industry, doesn't offer standards for how crude should be treated before being
shipped. "We have not seen any data to suggest processing crude in the
field reduces risk," a spokesman says. The North Dakota Petroleum Council
expresses a similar view.
But
pipelines, which carry most of the crude oil moved in the U.S., at times
require stabilization of oil for safety purposes, according to a spokesman for
Enbridge Inc., one of the biggest pipeline companies in North America.
Many
industry experts and energy executives say privately that using stabilizing
units would improve safety but are reluctant to make that point publicly for
fear of antagonizing the companies that do business in North Dakota.
One
exception is a company that has built the first stabilizer there, which is
scheduled to open in the next few weeks.
"It
is safer to stabilize that product before it goes into rail cars," says
David Scobel, chief operating officer of Caliber Midstream Partners LP of
Denver. "It is not accurate to say, 'If we stabilize the crude, that's the
magic solution so there will be no more fires.' But it is more stable."
Starting
in 2008, energy companies that had been using new techniques to tap shale for
natural gas began turning those methods, including fracking and horizontal
drilling, on formations rich in oil. While much of this activity took place in
Texas, which has a century-old oil industry, one of the most promising
discoveries was in shale under North Dakota plains better known for producing
wheat and canola.
Over
the past six years, the industry has drilled 7,000 wells in North Dakota,
almost all of them spread across about 15,000 square miles of the Bakken.
Rather than installing pipelines to collect oil from these far-flung locations,
companies used trucks to collect the oil and started building rail terminals to
ship it by train. Crude-by-rail shipments from North Dakota have quadrupled
since 2012
The
most combustible components of Bakken crude—known as light ends—constitute
between 2% and 11.9% of its volume, according to an analysis by the American
Fuel & Petrochemical Manufacturers, an industry trade group. Other sources
have a lower figure for Bakken light ends. These vaporous liquids can be
valuable, but only if pipelines or special railcars are available to transport
them.
Lacking
that infrastructure, stripping out volatile liquids could hurt profits by
reducing the volume of crude for sale. Stabilizing the crude could cut
potential revenue by perhaps 2%, an industry executive estimates.
Hess
Corp., a large Bakken-crude producer, considered building a stabilizer in 2011
for North Dakota oil. Instead, the company opted for a less expensive, more rudimentary
process that heats oil to between 80 and 120 degrees Fahrenheit in so-called
heater treaters to strip out light ends. A stabilizer wasn't needed, Hess Vice
President Gerbert Schoonman says.
But
heater treaters aren't as precise as stabilizers and can't remove as much
volatile material, according to an executive at a company that produces both
kinds of equipment.
The
situation in the Bakken contrasts with the Eagle Ford Shale in South Texas. In
2012, there was basically no equipment to stabilize the crude. But companies
have spent hundreds of millions of dollars to build centralized facilities and
pipelines to move the resulting propane and butane to a Gulf Coast
petrochemical complex.
The
crude was stabilized enough to be shipped without incident through pipelines,
trucks and rail tank cars, says Rusty Braziel, an industry consultant.
"Over a two-year period of time, the vast majority of the problem went
away."
—Alison
Sider contributed to this article.
Write
to Russell Gold at russell.gold@wsj.com and Chester Dawson at
chester.dawson@wsj.com
Link to original Wall Street Journal article
