North Dakota Oil Producers Resist Wholesale Safety Overhaul

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Hess Corp and other major North Dakota oil producers told the state’s top energy regulators on Tuesday that existing field practices used to prepare Bakken crude for rail transport are safe, and tighter standards could do more harm than good. The comments, at a special hearing of the North Dakota Industrial Commission (NDIC), came as federal, state and local officials grapple with how to ensure the safe transport of the state’s crude oil. The matter has come under increased scrutiny after a string of crude-by-rail explosions, including one last year in Quebec that killed 47 people.

The NDIC asked companies, academics and others to testify about how regulatory changes could affect the safety of Bakken crude oil and producers’ costs. The NDIC has not set a timeline for any decisions. Oil producers laid out in detail the methods they say make the transport of North Dakota’s oil as safe as possible, and argued that stricter rules were not needed. No pipeline or rail companies signed up to testify at the hearing.

“We believe Bakken crude oil is sufficiently prepared for transport in the field using conventional separation equipment already in place at well sites,” Brent Lohnes, director for field and plant operations at Hess, told the NDIC at a Bismarck hearing packed with 150 spectators.

More than 1 million barrels of crude are extracted each day from shale formations underneath North Dakota, making it the nation’s second-largest oil producer after Texas. Most of the crude contains higher-than-average concentrations of ethane, propane and other combustible natural gas liquids (NGLs), which can be used to make a range of chemicals that are the building blocks for hundreds of consumer goods, including carpet, sneakers and tires.  

Since most of North Dakota’s crude is exported via rail lines that eventually wind through urban areas, treatment practices, including whether mandating the removal of all NGLs before shipment, have become a hot-button topic nationally. Representatives from Continental Resources Inc, Statoil ASA, Oasis Petroleum Inc and Whiting Petroleum Corp echoed the comments from Lohnes, who gave his testimony in conjunction with the American Petroleum Institute, the leading oil trade group.

The NDIC, a three-member panel chaired by Governor Jack Dalrymple, will consider testimony from the hearing in deciding whether to require construction of as many as 50 large-scale “stabilizers” that remove NGLs before oil is loaded onto railcars or into pipelines. Such equipment is widely used in Texas, but building them in North Dakota would spark another construction boom in a state that has grown weary of them.

Producers argue that stabilization would create a separate product, NGLs, for which there are few transport options besides rail. That would force an even-more potent material onto tracks. Stabilizers would be a “costly, redundant process,” Kari Cutting, vice president of the North Dakota Petroleum Council, an industry trade group,” told the NDIC.

The state’s Bakken crude is no more volatile than oil extracted elsewhere in the United States, Cutting said, repeating a mantra the producers have adopted in an attempt to quell transport concerns. 

“North Dakota’s Bakken crude is very similar to other light crudes,” said Keith Lilie of Statoil, which tests crude from its 460 North Dakota wells twice a month to gauge pressure, temperature, sulfur content and other variables.

LEANING TOWARD SECOND OPTION

Even as the NDIC considers stabilizers, the panel appeared to be leaning toward a second option that would require existing field equipment to be operated at specific temperatures and pressures to boost the amount of NGLs collected. NDIC staff members asked very specific questions about vapor pressure, temperature and other metrics for operating heater-treaters, separators and other equipment at their well sites. They will use this information to craft any new regulatory changes.

A widely circulated report conducted by consultancy Turner Mason earlier this year and paid for by the North Dakota Petroleum Council recommended a range of optimal metrics for running the equipment. The oil industry is encouraging the NDIC to adopt the recommendations. Independent experts have said stabilizers are more effective than heater-treaters at removing NGLs.

“We all want the oil to meet the standards for shipment,” Jeff Hume, Continental’s vice chairman, said in an interview after the hearing. “By working with the various operators, commissioners can set optimal specifications on how light ends (NGLs) can be best recovered.”

On the federal front, the U.S. Government Accountability Office on Monday encouraged the Department of Transportation (DOT) to tighten its oversight of crude volatility testing.

The DOT in July proposed safety rules for railcar design, but has not issued standards on whether NGLs should be removed from crude oil.

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