North Dakota Oil Producers Resist Rail Shipment Safety Overhaul

North Dakota oil producers told the state’s energy regulators on Tuesday that existing field practices used to prepare Bakken crude for rail transport are safe and that tougher rules could do more harm than good.

The comments, at a special hearing of the North Dakota Industrial Commission (NDIC), came as federal, state and local officials grapple with how to ensure the safe transport of the state’s crude oil. The matter has come under increased scrutiny after a string of crude-by-rail explosions, including one last year in Quebec that killed 47 people.

The NDIC, which plans to issue any new regulations no later than mid-December, asked for testimony about how changes could affect the safety of Bakken crude oil and producers’ costs.

Critics urged regulators to deploy new “stabilizers” that remove flammable natural gas liquids (NGLs) from the crude oil to reduce its volatility.

Producers say some NGLs can be removed by simpler equipment that already exists near wells and that stabilization would backfire by putting an even more potent material, pure NGLs, onto railroad tracks. They also say existing tank cars are strong enough to carry the crude.

“We believe Bakken crude oil is sufficiently prepared for transport in the field using conventional separation equipment already in place at well sites,” Brent Lohnes, director for field and plant operations at Hess Corp, told the NDIC at a Bismarck hearing packed with 150 spectators.

More than 1 million barrels of crude are extracted each day from shale formations underneath North Dakota, making it the nation’s second-largest oil producer after Texas. More than 60 percent of Bakken crude leaves the state on trains.

Most of the crude contains higher-than-average concentrations of ethane, propane and other combustible NGLs.

Environmentalists, and some residents, encouraged the NDIC to tighten safety standards, referring to oil transported in rail cars as “Bakken bombs.”

Representatives from Continental Resources Inc, Statoil ASA, Oasis Petroleum Inc and Whiting Petroleum Corp, though, echoed comments from Lohnes, who gave his testimony in conjunction with the American Petroleum Institute, the leading oil trade group. Rail companies did not attend the hearing.

The NDIC, a three-member panel chaired by Governor Jack Dalrymple, could decide to require construction of as many as 50 large-scale stabilizers that remove NGLs before oil is loaded onto railcars.

Such equipment is widely used in Texas before crude is put into pipelines that North Dakota lacks.

Stabilizers would be a “costly, redundant process,” Kari Cutting, vice president of the North Dakota Petroleum Council, an industry trade group, told the NDIC.

The state’s Bakken crude is no more volatile than oil extracted elsewhere in the United States, Cutting said.

“North Dakota’s Bakken crude is very similar to other light crudes,” said Keith Lilie of Statoil, which tests crude from its 460 North Dakota wells twice a month.

Scott Skokos, a field organizer with the Dakota Resource Council, urged the NDIC to sharply tighten crude treatment standards and focus on public safety.

“You have to have a stick as a regulator,” Skokos said. “If you keep giving them carrots, they’ll keep on eating them.”

Even as the NDIC considers stabilizers, the panel appears to be leaning toward another option that would require existing field equipment to be operated at specific temperatures and pressures to boost the amount of NGLs collected.

A widely circulated study the consultancy Turner Mason did earlier this year for the North Dakota Petroleum Council recommended a range of optimal settings for well site equipment known as separators and heater-treaters.

The oil industry is encouraging the NDIC to adopt those recommendations, but independent experts have said stabilizers are better at removing NGLs.

“We all want the oil to meet the standards for shipment,” Jeff Hume, Continental’s vice chairman, said in an interview.

Connie Triplett, a Democratic state senator and member of the state legislature’s energy development committee, critiqued the Turner Mason study for collecting oil samples in the spring instead of throughout the year.

“This is a study that needs to be seriously questioned in terms of its validity,” Triplett said.

The senator asked the NDIC not to rely on the study, and said she would push for the state to fund one of its own.

On the federal front, the U.S. Government Accountability Office on Monday encouraged the Department of Transportation (DOT) to tighten its oversight of crude volatility testing.

The DOT in July proposed new rules for tank car design, but has not issued standards on whether NGLs should be removed from crude oil.

(Editing by Terry Wade, Jeffrey Benkoe and Lisa Shumaker)