Washington state rail bill could put 150,000 b/d of Bakken oil shipments at risk

Washington — Washington state lawmakers may soon approve a bill which could put an estimated 150,000 b/d of Bakken crude at risk of being moved through the state, potentially causing a major adjustment in domestic crude flows.

The bill, which was approved by the state senate on March 3 and is awaiting House approval, sets new vapor pressure limits for Bakken crude shipped through the state, prohibiting a facility from loading or unloading any crude from a rail tank car unless the oil has a vapor pressure of less than 9 psi.

But analysts and opponents of the bill say it is built upon a false premise: that Bakken crude is inherently more dangerous to ship by rail than other crudes and commodities.

"Bakken is light, it is, in some cases, more volatile, but to make the claim that it is somehow more dangerous or more hazardous, I don't believe that is supported by the available evidence today," said Dennis Sutton, executive director of the Crude Oil Quality Association.

"Bakken crude oil is typically more volatile than other crude oil, increasing the flammability of the oil and the potential for far greater harm to the public in the event of a derailment," the bill states. "Volatility limits are necessary to ensure that Bakken crude oil is packaged and handled safely and securely during transportation."

The new rules, if the bill becomes law, would take effect July 1, 2020.

More than 90% of crude-by-rail shipments through Washington are carrying light crude from North Dakota, according to the Washington State Department of Ecology. The remainder are heavy oil shipments from Alberta, Canada, and, occasionally, shipments of light crude from Saskatchewan, according to the state agency.

In 2018, an average of nearly 148,900 b/d of North Dakota crude was shipped by rail through Washington, roughly 12% of North Dakota's total output.

In 2015, North Dakota instituted new crude-conditioning standards that require operators to use heater-treaters and separators to keep the vapor pressure of all Bakken crude under 13.7 psi. But, according to Jeff Hume, chairman of the North Dakota Petroleum Council, Bakken producers would not be able to comply with the Washington law without purchasing costly stabilization equipment and forcing them to remove propane, butane and other components valued by refiners from their crude streams in order to fall below the 9 psi threshold.

"The industry of North Dakota will not adapt to this legislation without serious consideration of market demand and legal recourse," Hume said during a March 19 hearing before the state House Environment and Energy Committee.

Hume said the 9 psi standard called for in the bill was "an arbitrary number" with "no scientific background to it."

Lynn Helms, the state's top oil and gas regulator, said the North Dakota's Attorney General and Industrial Commission plans to sue Washington under the Interstate Commerce Clause if the House passes the bill and Governor Jay Inslee signs it into law.

"The governor has been active in ensuring the safe transport of oil across Washington state by both rail and vessel," said Tara Lee, an Inslee spokeswoman, on Wednesday. "We support the continuing discussions around [the bill] which seeks to extend safety measures for oil transport on our rail lines."

NO DIFFERENCE BETWEEN CRUDES

Hume said Bakken crude, which typically has a gravity of 41 to 43 API, is no different from the majority of US crudes.

If the legislation is approved by the state House of Representatives and signed into law by Governor Jay Inslee, North Dakota crudes currently shipped by rail into Washington would be replaced by shipments of similar crudes from Wyoming, Colorado, Texas and New Mexico, Hume said.

"There would be no appreciable difference in composition and no difference in transportation safety," Hume said.

"Although Bakken and other light crude are high in light-end paraffinic range hydrocarbons, when classified and transported in the appropriate packaging system, Bakken crude is as safe to transport as other crudes," Rachel Meidl, a fellow at the Center for Energy Studies at Rice University's Baker Institute for Public Policy, told S&P Global Platts this week. "Furthermore, Bakken crude does not exhibit appreciable differences when compared to other crude oil or flammable liquids that are authorized for rail transport."

Meidl said that solely focusing on crude oil is a "slippery slope" since other materials with the same hazard class, but with higher vapor pressures, could pose a greater risk under that view.

In January, about 1.24 million b/d of oil produced in North Dakota had an API of above 40, more than 90% of the state's total output, according to the US Energy Information Administration. Nearly 3.3 million b/d of Texas' January oil output, or about 68% of the state's total oil production, had an API above 40, while 689,000, or 85%, of New Mexico's oil production that month was above 40, according to EIA data.

-- Brian Scheid, brian.scheid@spglobal.com

-- Edited by Jennifer Pedrick, newsdesk@spglobal.com