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North Dakota to ask federal agency to block Washington state's crude-by-rail law

Highlights

Law expected to disrupt 150,000-200,000 b/d of crude-by-rail movement

Petition may start state, federal jurisdictional fight over crude transport

Nearly 16 million barrels of Bakken crude shipped through Washington in Q1

Houston — North Dakota is expected to ask the federal government to block the state of Washington from enforcing a crude-by-rail law forecast to keep as much as 200,000 b/d of Bakken crude from reaching Puget Sound refineries, the state's top oil and natural gas regulator said Tuesday.

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North Dakota's Industrial Commission will vote Wednesday to petition the US Pipeline and Hazardous Materials Safety Administration to use its federal preemption authority and claim jurisdiction over crude-by-rail through Washington, said Lynn Helms, director of the North Dakota Department of Mineral Resources.

"PHMSA has full regulatory authority over crude-by-rail shipments and what's considered hazardous and what's not and how it's transported and all that," Helms told reporters Tuesday.

North Dakota officials had considered a federal legal challenge against Washington on the grounds that the new law violates the US Interstate Commerce Act. But officials now see the petition to PHMSA as the "best and quickest option at this point," Helms said.

Washington may challenge PHMSA's authority over crude-by-rail regulation in court, Helms said.

The state law, which Washington Governor Jay Inslee signed into law in May and will go into effect January 1, prohibits Washington's five existing refineries, all along Puget Sound and with a capacity totaling nearly 638,000 b/d, from unloading any crude from a rail tank car unless the oil has a vapor pressure of less than 9 psi, potentially setting a de facto ban on Bakken crude shipped by rail.

2nd Annual North American Crude Oil Exports Summit | October 28-30, 2019 | Houston, Texas

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Helms has said Bakken operators would not be able to condition Bakken crude to below that 9 psi level without removing valuable product, including butane, from the crude stream. Helms said the law, if imposed, would disrupt 150,000-200,000 b/d of Bakken crude through the state.

The 9 psi standard only goes into effect after a refinery increases its crude-by-rail imports by more than 10% from 2018 reported volumes. The changes essentially place a cap on a refinery's imports of crude shipped by rail through the state.

North Dakota exported by rail an estimated 265,000 b/d of its crude oil output, about 19% of its total output, according the North Dakota Pipeline Authority.

More than 15.9 million barrels of crude, or about 174,400 b/d, were moved by rail through Washington state in Q1 2019, according to the most recent data from the Washington Department of Ecology. About 164,400 b/d, or roughly 94%, of crude transported by rail through Washington in Q1 originated in North Dakota, the state agency said. About 9,300 b/d, or about 5%, originated in Alberta and about 700 b/d, or less than 1%, originated in Saskatchewan.

Last year, Washington imported about 28%, or roughly 184,000 b/d, of its crude by rail, including more than 90% from North Dakota and the rest from Alberta. The state imports about 45%, or 262,000 b/d, by sea and about 27%, or more than 81,000 b/d, through the Trans Mountain Pipeline across the Canadian border.

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

-- Edited by Valarie Jackson, newsdesk@spglobal.com