North Dakota regulators are imposing strict new oil standards requiring every barrel of crude produced in the state to be filtered to remove volatile types of natural gas in order to make crude-by-rail transport safer.
Shipping Oil by Rail
Federal, state, and local officials hope the new regulations, imposed in January, will ensure the safe transport of North Dakota’s crude oil and prevent deadly explosions involving trains, like one last year in Quebec that killed 47 people.
Oil companies rely on the trains because adequate pipelines do not exist in and around North Dakota.
The new regulations set by the North Dakota Industrial Commission require producers of Bakken crude to process their product under specified temperatures and pressures, to remove much of the butane, propane, and other volatile liquids associated with North Dakota crude.
Smaller Producers Hit Hardest
The costs of the new regulations will vary depending on the size, location, and infrastructure of each oil producer. Generally, the costs will disproportionately affect smaller producers with less capital.
Daniel Simmons, vice president for policy at the Institute for Energy Research, said, “Light oil is a blessing because, generally speaking, lighter oil is more valuable than heavier oil. But light oil can be a curse because lighter oil is more volatile and explosive. The regulators are trying to reduce the potential for harm, but it will cost North Dakota oil producers.
“Filtering the oil will increase the costs for North Dakota’s oil producers,” he explained. “This means slightly higher oil prices, but more importantly it means additional financial stress for North Dakota’s oil producers already reeling from plummeting oil prices. Plummeting oil prices are great for consumers, but these prices will be tough for producers in North Dakota,” Simmons said.
Isaac Orr, a research fellow at The Heartland Institute, which publishes Environment & Climate News, says the additional measures being required are in response to rare explosions resulting in fatalities. The new requirements will reduce the fluid pressure of oil shipped by rail in North Dakota below a national standard. Like Simmons, Orr says this will increase costs for producers who are already feeling the pinch of falling oil prices.
Orr says there is a better solution: Build more pipelines.
“Expanding the capacity of existing pipelines and building new ones makes the most sense for the environment and the economy in both the short term and the long run. It would allow these valuable petroleum liquids, such as propane, to be transported safely and efficiently for long distances without the need for trains,” Orr said.
Because North Dakota’s oil fields are relatively new, they do not have the pipeline network to transport the oil, so most is transported by rail. Building the Keystone XL pipeline would help, but even it won’t completely relieve the problem until more regional pipelines are built in the state, Simmons notes.
“Ultimately, this decision will have a mixed impact on the citizens in the rest of the country. Crude transported by rail will be more stable, but it could result in more flaring of gases because they are harder to transport now, which could increase prices for products like propane,” Orr said.
Simmons agrees the impact won’t be too great nationally, saying, “North Dakota’s decisions will not necessarily affect other states because the oil from each formation is different and other states have a more developed pipeline network than North Dakota.”