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ND oil regulators, executives complain Bakken crude's volatility unfairly singled out

BISMARCK – North Dakota oil regulators and industry officials expressed bewilderment Wednesday over why a federal agency has singled out Bakken crude oil as more volatile than other U.S. crudes when an industry analysis yielded data similar to a government study but deemed the oil as safe as other crudes.

“They really do seem to be picking on us,” said Attorney General Wayne Stenehjem, who received the industry report Wednesday along with his two fellow members on the state Industrial Commission, Gov. Jack Dalrymple and Agriculture Commissioner Doug Goehring.

Dalrymple said he’s “puzzled” by the focus on the light, sweet crude from the Bakken shale formation, and he plans to ask U.S. Department of Transportation Secretary Anthony Foxx about it when Foxx and U.S. Energy Secretary Ernest Moniz visit Bismarck on Friday for a discussion on national energy policy.

The DOT’s Pipeline and Hazardous Materials Safety Administration released a report July 23 that found Bakken crude has a higher gas content, higher vapor pressure, lower flash point and boiling point “and thus a higher degree of volatility than most other crudes in the U.S., which correlates to increased ignitability and flammability.”

The report was prompted in part by the derailment and explosion of train cars carrying Bakken crude that killed 47 people on July 6, 2013, in Lac-Megantic, Quebec. It also cites three other recent train mishaps involving Bakken crude, most notably the fiery derailment Dec. 30 near Casselton, N.D.

“Given Bakken crude oil’s volatility, there is an increased risk of a significant incident involving this material due to the significant volume that is transported, the routes and the extremely long distances it is moving by rail,” the PHMSA report stated.

However, an industry study commissioned by the North Dakota Petroleum Council came to a different conclusion. The final report – released Monday and presented to the Industrial Commission on Wednesday – reinforced preliminary results released in May that found Bakken crude is similar to other North American light, sweet crudes and doesn’t pose a greater risk to transport by rail than other crudes and transportation fuels.

Dennis Sutton, an Ohio-based consultant with Turner, Mason & Co., which conducted the $400,000 industry study with SGS Laboratories, said PHMSA’s conclusion isn’t supported by data in its report.

“I think they are painting a picture incorrectly that the world of crudes looks like this and Bakken is out here,” he said.

Petroleum Council Vice President Kari Cutting said she asked PHMSA if it had comparative data on Bakken and other forms of crude regarding volatility and flammability, “and they said, ‘Not at this time.’ ”

“It almost sounds like they’re trying to make something up,” Goehring said.

Gordon Delcambre Jr., spokesman for PHMSA, released the following statement Wednesday night:

“PHMSA is aware of the North Dakota Petroleum Council’s Bakken crude oil report but has not had a chance to review its findings. In PHMSA’s recently released data report, testing showed that the crude oil from the Bakken region in North Dakota has higher vapor pressures and lower initial boiling point readings than other crude oil. This means that Bakken crude oil tends to be more susceptible to fire or explosion in the event of a rail incident and was a key consideration in concluding that Bakken crude tended to be more volatile and flammable. As we've said, more needs to be understood about this crude oil, and our safety experts continue to collect and analyze our own data and data provided by others.”

The industry report outlined several recommended “best practices” for treating, testing and shipping Bakken crude. They include classifying all Bakken crude as a Class 3, Packing Group 1 hazardous material – the most dangerous class of Class 3 flammable liquids – even if current testing methods would classify a shipment as Packing Group 2. The difference in packing group number won’t affect how Bakken crude is moved by rail, but it would limit what types of trucks could haul the crude.

Oil company executives said existing infrastructure and vapor recovery equipment being installed in the maturing Bakken oil fields will help remove so-called “light ends,” or gases like butane and propane, from the crude to make it as safe as possible, but they noted it will still be flammable.

“I can’t make the oil not burn,” said Jeff Hume, an executive with Continental Resources, the largest mineral rights leaseholder in the Bakken shale oil play.

“You’ll be able to take a little bit out of the crude, but it won’t make a material difference,” said Steve McNally, Hess Corp.’s general manager for North Dakota. “What it will do is add significant cost to each individual well, and as you add individual cost, it makes it more problematic for those wells to be economical.”

A Fargo resident concerned about the potential for another Lac-Megantic-type disaster wants oil companies to go further. Ron Schalow has launched an online petition on his Facebook page, “The Bomb Train Buck Stops With North Dakota,” asking the Industrial Commission to force producers to strip all natural gas liquids from Bakken crude before shipping it by rail.

“The fact is it’s dangerous and they can do something about it if they want, and they won’t,” Schalow said, adding, “It’ll cost billions, and that’s the big issue.”

Karlene Fine, executive director of the Industrial Commission, said it’s the first time the Industrial Commission has been petitioned in that manner. She had received about 70 of the petition emails since Friday and will report the tally to the commission when they start tapering off, she said.

Industrial Commission members voted Wednesday to direct the Department of Mineral Resources to schedule a public hearing to take input on steps to reduce volatility of Bakken crude at well sites, not unlike how it held a public hearing when the commission was considering industry recommendations for reducing the flaring of natural gas at well sites.

“In my opinion, we’re going to have to do as much as we possibly can without becoming totally unfeasible from an economic standpoint,” Dalrymple said. “To the extent that we can lower vapor pressure, I think we ought to do that.”