U.S.

Department of Transportation Regulation

Sheds Light on Crude-by-Rail Trafc
August 2014
1
U.S. Department of Transportation
Regulation Sheds Light on
Crude-by-Rail Trafc
A GENSCAPE WHITE PAPER
August 2014
OIL
TABLE OF CONTENTS
Executive Summary 2
DOT Emergency Order 3
States Release Rail Data 4
Bakken Shale-by-Rail 6
Crude-by-Rail Challenges 7
DOT Tank-Car Safety Proposal 8
Conclusion 9
Bridget Hunsucker
Senior Editor, Genscape Oil
2
U.S. Department of Transportation Regulation
Sheds Light on Crude-by-Rail Trafc
August 2014
EXECUTIVE SUMMARY
A new federal rule requiring railroads to report large Bakken shale movements to state authorities has
revealed hundreds of crude-by-rail train routes, bringing more transparency to the relatively young industry as
it faces narrow price spreads and increased regulatory attention.
Each week, unit trains typically move Bakken barrels through 32 of North Dakotas 53 counties, according
to data made public after the U.S. Department of Transportations (DOT) Emergency Order on May 7. The
order requires railroads to notify State Emergency Response Commissions (SERCS) of the frequency of rail
shipments of more than 1 million gallons - or about 23,810 barrels - of the light, sweet shale crude.
1
For example, BNSF Railway each week sends as many as 45 Bakken trains per week through Cass County in
North Dakota, located on the southeastern edge of the state. Typically, 31 crude trains move through that
county per week, the leading Bakken carrier said in a ling to state ofcials. In addition, about 30 trains per
week move through Barnes County, west of Cass and 26 trains through Ward County, located in upper-mid
North Dakota. Some 23 Bakken trains per week are typically sent through seven other counties in the state
via BNSF.
1 Department of Transportation; May 7, 2014: http://www.dot.gov/brieng-room/emergency-order
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U.S. Department of Transportation
Regulation Sheds Light on
Crude-by-Rail Trafc
OIL
BNSF
CP
Northern Plains
North Dakota
Bakken Trains / Week, >1 mil. gal.
BNSF
CP
NORTHERN PLAINS
U.S. Department of Transportation Regulation
Sheds Light on Crude-by-Rail Trafc
August 2014
3
Competitor Canadian Pacic typically sends two to ve trains through 13 North Dakota counties
per week, while short-line railroad Northern Plains said it expects to send 12 trains annually
through Walsh County, ND.
The relatively cheap Bakken crude grade is now loaded at some 18 crude rail facilities in North
Dakota, totaling about 1.288 million bpd of loading capacity. Total Bakken rail loadings were
522,383 bpd for the week ended July 25, according to Genscape monitoring data. About
372,300 bpd were loaded on July 24, 2012, the rst day of monitoring when nine terminals were
taken into account. During the rst week in January 2014, 596,554 bpd was monitored.
This white paper summarizes data made public after the DOTs Emergency Order. Readers will
gain a fresh depiction of Bakken rail trafc and learn about challenges facing the young crude-
by-rail industry, such as narrow price spreads, shrinking price arbitrage opportunities, and more
regulatory attention.
DOT EMERGENCY ORDER
When complying with the Emergency Order, a uniform reporting format was not followed by all
railroads, with some offering a range of typical movements, while others provided more detailed
estimates of weekly trafc to the SERCS.
The aim of this reporting requirement is to give rst responders an understanding of the volume
and frequency with which Bakken crude oil is transported through their communities so that they
can prepare their response plans accordingly, the DOT said on its website.
2
U.S. Federal Railroad Administration spokesman Kevin Thompson said in an interview that
railroads are required to provide updated Bakken trafc information to SERCS if the route or
frequency of shipments changes by 25 percent or more.
The decision to release the information publicly was left up to the individual states. U.S. ofcials
advised that the information was not considered security sensitive but that it was preferable
if the shipment information was distributed on a need-to-know basis. States then had to take
into consideration their own right-to-know laws, he said.
2 U.S. Department of Transportation Federal Railroad Administration: https://www.fra.dot.gov/eLib/Details/L05237
Total Loaded Bakken Rail
Learn from
the Industrys
Leading
Experts
BLOG
U.S. Department of Transportation Regulation
Sheds Light on Crude-by-Rail Trafc
August 2014
4
Some states decided to release the information publicly on their websites or in response to Freedom
of Information Act requests, while others withheld the information and even signed condentiality
agreements with railroads. We have been hearing from a lot of states for clarity and guidance,
Thompson said.
STATES RELEASE RAIL DATA
A Genscape survey of Emergency Order data released by states - including New York, Washington,
California, Virginia, Montana, South Dakota, Iowa, Wisconsin, Oregon, and North Dakota - showed
that each week, hundreds of unit trains carrying thousands of barrels of Bakken Shale crude are
moved on multiple railroads in the United States.
On the East Coast, in New York State, CP typically moves seven trains, or a range of between
ve and nine Bakken crude trains, per week, while CSX moves between 20 to 35 trains per week
through various points in Albany County.
In recent years, Albany, NY, has emerged as an important crude-by-rail hub. Unloadings at Global
Partners 165,000 bpd crude-by-rail terminal there averaged 105,686 bpd during the week ended
July 25, according to Genscape monitoring data. On August 5, 2013, the rst day of monitoring
the facility, unloading volumes were 68,500 bpd.
New York State
Bakken Trains / Week, > 1 mil. gal.
CP
CSX
A Study of
Rail Activity
& Price
Movements
in North
America
WEBINAR
U.S. Department of Transportation Regulation
Sheds Light on Crude-by-Rail Trafc
August 2014
5
Also in New York State, CP typically rails ve to nine trains per week through Clinton, Essex,
Saratoga and Schoharie counties. CSX sends between 20 and 35 Bakken trains weekly through
Cayuga, Chautauqua, Erie, Genesee, Herkimer, Madison, Monroe, Montgomery, Oneida, Wayne,
and Onondaga counties. Some 15 to 30 trains are sent through Orange, Greene, Rockland, and
Ulster counties.
In Virginia, each week CSX moves between two to ve Bakken trains carrying more than the DOT
threshold through 20 counties. Many of those trains are likely headed to Plains All Americans
140,000 bpd unloading facility in Yorktown, VA, from which crude is moved by barge to reneries
in the Northeast. During the week ended July 25, the Yorktown terminal unloaded 20,550 bpd
on average, according to Genscape. On June 10, the rst day of monitoring, 61,643 bpd was
unloaded at the terminal.
On the U.S. West Coast, where crude-by-rail movements have been growing but have also been
facing increasing and widespread regulatory opposition, BNSF said that it typically transports crude
in 16 counties in Washington state and typically about 13 trains may travel per week through
Adams, Benton, Clark, Franklin, Klickitat, Lincoln, Skamania, and Spokane counties. BNSF often
also sends about 12 trains per week through three other counties, including King, Snohomish,
and Skagit.
Tesoros 50,000 bpd Anacortes unloading facility is located in Skagit County. Rail shipments from
Epping, ND, to Anacortes were 81,417 bpd for the week ended July 25, according to Genscape
data. Anacortes unloaded 50,885 bpd on June 24, the rst day of monitoring.
Tacoma Rail is moving about three Bakken crude trains a week through Pierce County, WA, it said.
Portland and Western Railroad operates about three crude trains a week through Clark County,
WA, and the anticipated route of those trains is through Vancouver into Oregon, with the crude
originating at loading terminals located at Berthold, Dore, Eland, and Epping, ND.
In Oregon, Portland and Western Railroad moves about three Bakken crude trains per week through
Multnomah and Columbia counties. Its possible these trains are moving to Global Partners trans-
loading facility in Clatskanie, located in Columbia County. Also in Oregon, BNSF moves about three
trains a week through Multnomah County and one train through Klamath County. However, BNSF
said they might move as many as nine trains per week through the two counties.
North Dakota Oil Production - YTD 2014
Source: North Dakota Pipeline Authority YTD Data
Gain Weekly
Insights Into
Crude-by-Rail-
Movements
SAMPLE
REPORT
6
U.S. Department of Transportation Regulation
Sheds Light on Crude-by-Rail Trafc
August 2014
In California, BNSF said it typically moves one train per week through nine counties, including Butte, Contra Costa,
Lassen, Modoc, Placer, Plumas, Sacramento, San Joaquin, and Yuba, with a weekly high of nine trains. This route starts
in the most northwestern corner of the state and ends at Contra Costa County. There, Kinder Morgan owns a trans-
load facility for customers, spokesman Richard Wheatley said, but did not comment further citing pending litigation.
Tesoros Golden Eagle renery, which is located in nearby Martinez, CA, receives crude from a third-party rail facility,
spokeswoman Tina Barbee said. She would not provide specics on operations citing company policy.
In the Midcontinent, BNSF and Montana Rail Link both reported large Bakken shipments moving through Montana.
BNSF typically sends 17 trains per week through Roosevelt County, 13 through Valley County and 12 through Flathead,
Glacier, Lincoln, and Phillips Counties. The route moves east to west across the top of the state, likely en route to
Washington State. Montana Rail Link also sends about two trains loaded with Bakken crude through 11 counties each
week in Montana.
In Iowa, BNSF said it sends about three trains per week through four counties: Sioux, Plymouth, Lyon, and Woodbury.
CP Railway sends up to one train per week through ve counties: Allamakee, Clayton, Clinton, Dubuque, and Jackson,
but the expected average number of trains per week through those counties is just .05.
In Wisconsin, BNSF sends 32 trains per week through Crawford and Grant counties, 31 trains through Trempealeau, La
Crosse, Vernon, Buffalo, and Jefferson counties, and 29 trains through Pierce and Pepin counties. In the same state CP
said it sends about four trains per week through 11 counties.
Only one county, Minnehaha, is railed through in South Dakota, with BNSF sending about three trains per week.
BAKKEN SHALE-BY-RAIL
Coinciding with the North Dakota Bakken shale boom, crude-by-rail emerged in late 2008 as a way to transport
the crude ahead of available pipeline capacity. In 2008, 9,500 rail-carloads of crude moved through our country
compared to last year, when there were 415,000 rail-carloads, the DOT said in July.
3
3 Department of Transportation; July 23, 2014: http://www.dot.gov/brieng-room/us-dot-announces-comprehensive-proposed-rulemaking-
safe-transportation-crude-oil
Williston Basin Crude Transportation
Source: North Dakota Pipeline Authority YTD data
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U.S. Department of Transportation Regulation
Sheds Light on Crude-by-Rail Trafc
August 2014
In crude-by-rails early days, private investors, reners, and midstream companies rushed to construct Bakken loading
and unloading terminals, rst along the U.S. Gulf Coast and then along the East Coast. Gulf Coast reners, which
traditionally use a relatively heavy crude slate, blended the lighter Bakken crude to improve renery margins. Also, a
number of East Coast reneries, which had been close to shutting due to poor rening margins, were revitalized by
replacing their more expensive imported crude supply with cheaper railed-in domestic crude.
Meanwhile Bakken production increased to unprecedented levels, moving from more than 100,000 bpd in 2007 to
close to 800,000 bpd in mid-2012, according to the U.S. Energy Information Administration.
4
More recently, Bakken
crude production hit an all-time high in May of 1.039 million bpd, up from 1.003 million bpd in April, according to the
North Dakota Pipeline Authority.
5
However, also during May, North Dakota rail loadings dropped to 59 percent of the
states total crude takeaway, the lowest monthly average since the end of 2012.
Rail volumes made up more than 70 percent of the total at the start of 2014, and were 63 percent in April. While rail
volumes have declined, takeaway pipeline volumes increased and in May were 34 percent of the states total takeaway,
up from less than 20 percent at the beginning of 2014.
CRUDE-BY-RAIL CHALLENGES
The crude-by-rail phenomenon is undergoing some challenges right now because of regulation uncertainty and
narrowing price spreads, Cowen and Company analyst Matthew Elkott said in an interview.
The benchmark price spread between Brent and West Texas Intermediate, which is a key indicator of U.S. crude-by-rail
economics, has narrowed considerably to near $5/bbl in July from close to $9/bbl in June. The spread was close to $19/
bbl toward the end of 2013.
Because of narrower price spreads, spot crude-by-rail market participants have seen a decline in positive price arbitrage
opportunities. Still, Bakken crude will continue to move on rail, Elkott said.
Spreads narrow, and they will widen again and narrow again, he said, but noted that rail has a permanent role in
the crude transportation market by offering exibility, scalability, and speed.
In addition, Elkott said that most of the regulatory uncertainty surrounding pending tank-car regulations should be
removed in the coming months when new safety standards are adopted.
Railroads and producers will start planning their lives around the new rules, he said.
4 Energy Information Administration; July 2014: http://www.eia.gov/petroleum/drilling/pdf/bakken.pdf
5 North Dakota Pipeline Authority: http://northdakotapipelines.com/directors-cut/
Albany Unloadings vs. Brent-WTI Spread
8
U.S. Department of Transportation Regulation
Sheds Light on Crude-by-Rail Trafc
August 2014
In response to a number of high-prole accidents involving crude-by-rail shipments, most notably at Lac-Mgantic in
Quebec, Canada in July 2013 which resulted in 47 fatalities, regulatory attention has shifted toward improving the
specication of tank-cars used to transport Bakken crude.
The DOT said in July that crude-by-rail industry participants should either phase out or retrot older DOT-111 tank-cars
in the next two years as part of a proposal for new safety rules. Cars not retrotted would have to be repurposed,
retired, or face speed restrictions for up to ve years, depending on various packing group assignments, the DOT said.
The department said that analysis of Bakken crude gathered by the Pipeline and Hazardous Materials Safety
Administration and Federal Railroad Association between August 2013 and May 2014 showed that crude from the
Bakken region is usually more ammable and volatile than other crude. The safety risk presented by transporting
Bakken crude oil by rail is magnied both by an increasing volume of Bakken being shipped by throughout the U.S.
and the large distances over which the product is shipped, the DOT said. Average Bakken crude shipments travel
more than 1,000 miles from origin point to coastal reneries, it said.6
The American Petroleum Institute in late July rebutted the DOTs characterization of Bakken crude. The best science and
data do not support recent speculation that crude oil from the Bakken presents greater than normal transportation risks,
API CEO Jack Gerard said in a statement. Multiple studies have shown that Bakken crude is similar to other crudes.7
DOT TANK-CAR SAFETY PROPOSAL
The DOTs safety proposal includes enhanced standards for tank-cars constructed after October 1, 2015, including
thermal protection, top ttings, bottom outlet protection, tank head, and shell puncture resistance. The PHMSA has
three options for enhanced tank-car standards. Option one would have 9/16 inch steel and would be outtted with
electronically controlled pneumatic (ECP) brakes and equipped with rollover protection. Option two would have 9/16
inch steel but would not require ECP brakes or rollover protection. Option three is based on the 2011 standards and
would have 7/16 inch steel.
The PHMSA is requesting comments on the enhanced tank-car standards options as well as on three speed restrictions:
a 40 mph maximum speed restriction in all areas; a 40 mph speed restriction in high-threat urban areas; and a 40 mph
speed restriction in areas with a population of 100,000-plus. In addition, the group has proposed that if cars meet
the enhanced regulations the speed limit would by 50 mph instead of 40 mph. The group will also evaluate a 30 mph
speed restriction for high-hazard ammable trains or trains carrying more than 20 tank carloads that do not comply
with new braking requirements.
Some rail industry participants were broadly dismissive of some of the suggestions outlined in the new regulation
proposals. The proposed two year phase-out of older models of tank-car was described as impractical by one
source, with capacity seen as tight at tank-car manufacturers able to retrot units. Manufacturing capacity to meet the
deadline outline is not even close, I dont believe, one rail industry source said.
Another market participant said that the proposed standards were in line with industry expectations. But there will
be a lot of tweaking and adjusting to reality, he said. Cowens Elkott said that the DOT-111 two-year time-frame
is considered by some to be unrealistic and that carriers and tank-car manufacturers my ask for ve to six years
to retrot. However, leading U.S. rail-car manufacturer Greenbrier Companies described the two-year timeline as
aggressive but achievable, according to reports.
6 Department of Transportation; July 23, 2014: http://www.dot.gov/brieng-room/us-dot-announces-comprehensive-proposed-rulemaking-
safe-transportation-crude-oil
7 American Petroleum Institute; July 23, 2014: http://www.api.org/news-and-media/news/newsitems/2014/july-2014/api-rebuts-
speculation-about-the-characteristics-of-bakken-crude
9 Copyright 2014, Genscape Incorporated. All rights reserved.
U.S. Department of Transportation Regulation
Sheds Light on Crude-by-Rail Trafc
August 2014
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CONCLUSION
The DOT Emergency Order, requiring railroads to report the frequency of large Bakken rail shipments, has brought new
transparency to the evolving crude-by-rail industry. Though some states have elected not to publically share reported
data, much of the data that was released and Genscape proprietary monitoring technology was compiled to identify
trends associated with the hundreds of unit trains carrying thousands of barrels of Bakken crude on multiple railroads
in the U.S.
While production in the Bakken continues to boom, pending tank-car regulation is one factor expected to contribute
to the shifting dynamics in the crude-by-rail industry. Though sources agree that rail has a lasting place in oil
transportation, this year more shippers have sent their crude on pipeline than at the start of 2014, according to
the NDPA. The debate as to the relative volatility associated with Bakken crude is ongoing, but new federal rules
around speed and tank car specications are expected soon in an effort to reduce the risk of future accidents. The
forthcoming regulations and relatively narrow price spreads are raising questions as to the growth of U.S. crude-by-rail.
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