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Safety debate eyes taming Bakken crude before it hits rails

By Kristen Hays

HOUSTON (Reuters) - After a spate of fiery derailments, the scramble to make North Dakota's Bakken crude oil safer when it's being transported on trains has focused on better tracks, slower speeds, and reinforced railcars that bypass urban areas.

But that is starting to change. A potentially more effective approach, which would remove the most volatile elements from the crude before it is being loaded onto rail cars, is now beginning to get attention, both from regulators considering safety enhancements and some lawmakers, industry executives say.

It is too soon to say if regulators, who say all options are on the table, will end up requiring Bakken crude to be stripped of flammable natural gas liquids (NGLs) before it moves by rail.

But degassing Bakken crude for rail would be costly.

Companies would need to spend potentially billions of dollars on small processing towers known as stabilizers that shave off NGLs from crude and build pipelines to carry the NGLs to a viable market.

Right now, little of that infrastructure exists in the Bakken, which produces about 950,000 barrels of crude per day for thirsty coastal refineries, with some 67 percent of that moving by rail.

"The issue of whether or not producers should be required to stabilize the product after it comes out of the wellhead and before it's loaded into a railcar is starting to come up in conversations at the Senate staff level," said a refining industry executive in Washington.

The flammability of crude and the quality of what goes into railcars is on the table for the industry and regulators working to improve safety, said Greg Garland, Chief Executive Officer of refiner Phillips 66, when asked if he could see infrastructure added in the Bakken to remove NGLs.

"I do think that is part of the equation that we ultimately need to address in terms of railcar safety," Garland said.

When asked if regulators were discussing stabilizer infrastructure as part of oil-by-rail safety discussions, a U.S. Department of Transportation spokeswoman said, "We are looking at all our options and everything is on the table."

The Bakken is 1,500 miles north of the U.S. Gulf Coast, the biggest market for NGLs in the nation. That gives Bakken producers and logistics companies little to no economic incentive to invest heavily on stabilizers and pipelines when they can load all their crude into railcars.

FIERY CRASHES

There has been a spate of fiery crashes of trains carrying Bakken oil in North America.

Last July a runaway Bakken train bound for a Canadian refinery crashed in the center of a small Quebec town and exploded, killing 47 people. Other crude train crashes or derailments in the United States have not killed anyone, but they ignited fires in or near towns, the most recent in Lynchburg, Virginia late last month.

Natural gas liquids known as light ends - propane, butane, ethane, pentane - impart the flammability in crude, said Harry Giles, former manager of crude oil quality programs for the U.S. Department of Energy's Strategic Petroleum Reserve.

Those are the components most likely to burn or explode when sparks fly in a crash or derailment.

Heavy crude, like viscous bitumen produced in Canada, is hard to ignite because it is virtually devoid of combustible light ends, he said. Canadian crude diluted with very light forms of oil is more flammable, and light-sweet crudes like those produced in North Dakota or Texas are even more so.

"In the Bakken, you've got two choices. You burn it, or you put it into the crude in the railcar," said Giles, who now heads a liquid petroleum transport company. "The higher the concentration of light ends, the greater the flammability."

In January the U.S. Department of Transportation's Pipeline and Hazardous Safety Administration (PHMSA) said Bakken crude may be more flammable than traditional heavy crude. At the same time, refiners and some shippers are phasing out older, less fortified railcars in favor of the latest design with thicker hulls and reinforced valves. Trade groups for railcar makers and railroads advocate for even stronger cars.

STABLIIZE IT

The alternative - measures to siphon NGLs from Bakken crude before it enters a railcar - would involve an infrastructure common in Texas but not seen so far in the Bakken region.

A stabilizer, a tall, cylindrical tower, uses heat to separate NGLs from crude. NGLs are then condensed and moved - by truck, rail or pipeline - to a fractionator for processing.

Crude stabilizers and NGL pipelines are ubiquitous in the Eagle Ford shale in Texas. Many stabilizers dot the oilfields, ranging in size from 500 barrels per day to as large as Plains All American's 80,000 bpd stabilizer at its Gardendale, Texas terminal. Plains is building a fractionator on the site and expanding the stabilizer to 120,000 bpd.

"We're fortunate that we have the infrastructure and the NGL lines. It makes sense to build stabilizers in the field where we produce," said Mike Spears, senior vice president of operations and engineering for San Antonio-based Howard Energy Partners, which is building a 10,000 barrels-per-day (bpd) stabilizer in Live Oak County.

Two reasons drive the Eagle Ford's wide use of stabilizers.

First, crude oil pipeline specifications require certain pressure limits that pretty much force companies to strip out NGLs, said Myron Goforth, president of Dew Point Control LLC, a suburban Houston company that leases stabilizers.

"It's a little like the wild west up in the Bakken, where everybody gets to do what they want to do," Goforth said. "In the Eagle Ford, you've got to play by the rules, which forces the oil companies to treat it differently."

And second, the Eagle Ford is close to the biggest market for NGLs in the U.S. along the Gulf Coast.

The nation's largest NGL processing center is in Mont Belvieu, Texas, a 30-minute drive east of Houston. A huge concentration of petrochemical plants that want NGLs to use in processing sits in southeast Texas and coastal Louisiana. The region is a growing NGL export hub as well.

Plus, the Gulf Coast market has little demand for Bakken NGLs as Texas oilfields offer more than enough.

"It's very easy to stabilize the crude - it just takes money," Goforth said. "The producer doesn't want to pay for it if he can ship it without doing it."

There is growing natural gas processing infrastructure in the Bakken to handle dry gas and reduce flaring. ONEOK Partners LP runs a $500 million, 600-mile (960-km) Bakken NGL pipeline that moves NGLs stripped from gas to Wyoming.

Growing concerns about moving volatile crude by rail could prompt regulators to force the issue for oil, said Daniel Hagan, project finance partner at the law firm White & Case, who has studied gas pipeline infrastructure issues in the Bakken.

"It could turn into, 'there's no economic incentive, however now it's a regulatory requirement'," Hagan said. "That's the reality. It's really hard to justify making investments that you're not required to do."

(Reporting by Kristen Hays; Editing by Terry Wade, Jonathan Leff and Frances Kerry)

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