Global Marketplace
M
arch
2014
145
The huge fireball captured on video covered the screen.
(“A Fresh Oil-Train Explosion Hits America’s Risky Energy
Bottleneck,” 31 December)
To recap the earlier derailments, the worst disaster occurred
back in July when a train carrying 72 carloads of crude
(roughly 50,000 barrels) rolled eight miles down a hill and
crashed into Lac-Mégantic in Quebec, killing 47 people and
essentially destroying the town. Also in Canada, in October,
a train carrying crude derailed outside Edmonton. And
in the US, in November, a train wreck in Alabama spilled
thousands of barrels of oil into a marshland. Apparently only
the presence nearby of a beaver dam prevented extensive
environmental damage.
Mr Philips pointed out that, in every case, the trains were
carrying crude from the Bakken formation in North Dakota.
Presumably on what he called “the veritable Cannonball Run
of crude being shipped from North Dakota to East Coast
refiners,” the train on 30 December was heading east when it
derailed and exploded in Casselton, just west of Fargo. This
is what happens when oil production outpaces the ability to
efficiently and safely move it around, wrote Mr Philips.
Until recently, the biggest casualty of the bottleneck he
describes was the price of domestic crude oil “stuck in the
middle of the country” and commanding, on average, $15
less per barrel than its international equivalent. But that is no
longer the situation.
A
lert
to
opportunity
According to the Association of American Railroads, rail lines
are now hauling 20 times the amount of crude they carried in
2009. Nowhere is the shift more evident than in North Dakota,
where more than 70 per cent of all Bakken crude leaves the
region by train. Over the course of 2014 that is expected to
reach 90 per cent.
Mr Philips acknowledged that the crude-by-rail bonanza offers
an example of the free market in action: private enterprise
filling an unmet demand and creating profits along the way.
The train that crashed in North Dakota was operated by
BNSF, the second-largest US railroad, which was bought
by Warren Buffett’s Berkshire Hathaway conglomerate in
2010. Whether or not the investor known as “the Sage of
Omaha” foresaw the crude boom, moving oil has been hugely
profitable for BNSF over the past two years.
Another
Bloomberg
reporter, Tim Catts, noted that, even
though more oil is spilled from pipelines, railroads have a
higher rate of mishaps. And when things go wrong the risks
are far greater. Last year also saw the largest oil spill on US
soil, when a burst pipeline leaked 20,000 barrels of crude oil
into a North Dakota wheat field in October. No one was hurt.
No fireball raged.
Reports of the latest crash indicated that the train carrying
soybeans derailed first and turned into the path of the oil
train, which was travelling in the opposite direction. While it is
difficult to know what precautions might have averted this, Mr
Philips suggested that improvement could start with upgrades
to the durability and strength of the cars that carry oil.
Oil trains might also proceed more slowly, allowing for time to
stop when danger looms. Such expedients would, of course,
raise the cost of an already pricey undertaking to move oil
thousands of miles on rails.
›
In closing, Mr Philips waxed elegiac for an earlier period
of the US Midwest. He wrote, “Just a few years ago, that
crude train wouldn’t have been there. Any train would probably
have been carrying grain. Instead of a mushroom cloud rising
hundreds of feet above a snow-covered prairie, there would
have been a bunch of soybeans to clean up.”
Saudi domestic demand,
already high and growing,
is seen as impacting income
from oil and gas exports
According to the results of a study published on 18 December
by a Riyadh-based Saudi investment bank, rising energy
demand within Saudi Arabia is a greater threat to the
prosperity of the world’s biggest oil exporter than surging US
shale output. (
arabtimesinline.com,
22 December)
Due partly to greater supply from North America, global
demand for crude oil produced by OPEC members like Saudi
Arabia is expected to fall, along with oil prices, over the
next few years. An abundance of cheap natural gas liquids
(NGLs), produced by the US shale gas boom, could make
Saudi petrochemicals industries less competitive.
But Fahad Al Turki, head of research at Riyadh-based Jadwa
Investment, believes that “the key long-term challenge” for
Saudi Arabia’s oil and gas industry remains the high and
growing domestic demand. He said, “This is exacerbated
by low prices locally, which will distort internal economic
decisions and reduce the available income from the
Kingdom’s oil exports.” (“Surging Saudi Fuel Demand Bigger
Threat than US Shale”)
Carried by the Bosnian public broadcaster RTRS, datelined
Dubai, the Jadwa report said that low-priced and plentiful
natural gas available to US petrochemical producers might
even prompt some of their Saudi counterparts to open plants
in the United States. Although US gas costs have fallen from
over $13 per million British thermal units (mbtu) in mid-2008
to around $4.29 at the end of 2013, Saudi gas prices (fixed at
around $0.75/mbtu for many years) are still much lower than
that. But Jadwa pointed out that one result of such low prices
has been a relative lack of investment in new gas production,
compelling Saudi Arabia to struggle to meet demand in the
heat of summer and forcing it to burn millions of barrels a
week of oil in power plants.
›
The surge in US shale gas production over the last five
years has also brought with it a sharp increase in liquefied
petroleum gas (LPG) supplies which could hit Saudi exports.
US production of LPG – mainly butane and propane used
increasingly in transport applications – has risen to the point
at which analysts expect US competition to force Saudi Arabia
to cut its sales prices in Asia and Europe in years to come.
