Tuesday, July 8, 2014

Greed and the Bakken: Explosive Oil Needs Stabilizing

Today's Wall Street Journal article about Bakken crude oil production makes my blood boil. I have been following the crude oil quality issue since the Lac-Megantic explosion last year, trying to get Platts reporters (when I was editor there) to find out why it was so explosive. They failed, whereas the WSJ investigation has unearthed some very disturbing facts.

From today's issue:

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.
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.  
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.
North Dakota shale oil contains 33% light ends - the flammable stuff like gases and gasoline. In other words, 33% of a barrel of oil from the Bakken is highly flammable. It also has a high Reid Vapor Pressure (again, thanks to WSJ's excellent investigative reporting), making it one of the most explosive barrels of oil on the planet. Around one million barrels per day comes out of the Bakken and makes its way to refineries around the USA and Canada through pipelines, barges and - mainly - by rail (more than 60% currently moves by rail).

Only one stabilizer - which would remove the most volatile gases - is slated for the Bakken. Why? Money. Stabilizers are expensive; the ones built for the Eagle Ford shale area in Texas cost producers hundreds of millions of dollars. So far, Bakken crude has been one of the best deals going for American (and to a lesser extent Canadian) refiners. It is cheap to produce and cheap to move by rail.  Making Bakken more expensive to produce would hit the American consumer, say refiners and politicians.

Who wants to add to the costs by adding stabilizers? I would say that the next group of people to experience a crude by rail crash and fireball in their town might think it worthwhile. I would also say that after the next rail crash and fire, lawsuits could very well target Bakken producers. And a multi-billion dollar lawsuit could very well make adding stabilizers look cheap.