Thursday, April 24, 2014

NTSB hears concerns on derailments of oil trains

 
 
WASHINGTON Federal regulators should use their emergency powers to make moving crude oil and ethanol by rail safer in the foreseeable future, the chairman of the National Transportation Board said Wednesday.
 
"They don't need a higher body count in order for the regulators to move forward," Deborah Hersman said of Transportation Department officials. She made her comments at the conclusion of a two-day forum on safety issues involving rail transportation of crude oil and ethanol.
 
The use of so-called unit trains carrying up to 100 tanker cars of crude oil or ethanol is a relatively new phenomenon that risks catastrophic events such as the July 2013 accident in Quebec that caused 47 deaths and the evacuation of more than 2,000 people.
 
The engineer on that crude oil train failed to properly secure it on an incline when it was parked overnight. The train rolled into the community of in Lac-Megantic, derailing at a speed of 64 mph.
 
The accident was the worst of 16 significant freight rail accidents since 2006. Nine involved crude oil and seven involved ethanol.
 
Hersman urged federal rail regulators to follow the lead of Transport Canada, which announced Wednesday it will phase out older DOT-111 series tanker cars in Canada over the next three years unless they're retrofitted.
 
In addition, Transport Canada announced that Emergency Response Assistance Plans will be required for trains that have even one tank car loaded with a flammable substance such as crude oil, gasoline, diesel, aviation fuel, or ethanol.
 
The Canadian agency also ordered a reduction in the maximum speed of freight trains carrying crude oil or ethanol through urban areas to 40 mph and 50 mph in other areas. That copies an emergency agreement reached earlier this year by the U.S. freight rail industry and the Federal Railroad Administration.
 
An estimated 434,000 tanker loads of crude oil were shipped by rail in the United States last year, compared to only 9,500 in 2008, according to the Association of American Railroads.
 
Much of that oil was carried from the Bakken Formation oil field in North Dakota and Montana to refineries on the East, West and Gulf coasts. Oil production in the Bakken field reached 1 million barrels a day in December and is forecast to peak at 2 million barrels a day in seven years, Skip Elliott of CSX Transportation told the NTSB.
 
"CSX does not seek to transport highly hazardous products, but we understand our commitment under the law," Elliott said, referring to federal common carrier regulations.
 
Oil trains rumble through Rockland on the River Line, the busy freight railroad owned by CSX. Each day, about 35 freight trains travel the River Line. Two of them typically are oil trains, each of them hauling some 2.4 million gallons of crude from the Bakken Formation in 80 to 100 tank cars shaped like soup cans. The most commonly used tank cars, DOT-111s, have a history of safety issues.
 
Oil trains gained the attention of Rockland's top public safety officials after a Dec. 6 crash of a locomotive hauling 99 empty oil tank cars into a truck in West Nyack. The train didn't derail.
 
About 70 percent of ethanol is transported by rail, according to Bob Dinneen of the Renewable Fuels Association.
 
"It has allowed us to create a virtual pipeline, allowing us to move product anywhere in the country," he said.
 
The NTSB forum highlighted industry disagreements that have slowed development of safety standards for new tanker cars in a growing sector of the U.S. economy.
 
The federal Pipeline and Hazardous Materials Safety Administration, which has jurisdiction over rail tanker car safety standards, has not yet proposed a new standard. Transportation Secretary Anthony Foxx, who oversees the agency, has told Congress no date has been set for releasing a draft of the proposed standard.
 
"The regulators have got to catch up," Hersman said. "They aren't moving fast enough and industry is, in many ways, leaving them behind."
 
Instead of acting with urgency, Hersman said, agencies are following a slow rulemaking process that could take years to implement.
 
The railroad industry has begun ordering a new generation of tank cars without waiting for new federal standards, but manufacturers and suppliers said they would prefer "regulatory certainty" that the new cars won't become quickly obsolete.
 
Likewise, fire safety groups told the NTSB they support working more closely with railroads to stockpile foam, and obtaining more detailed information about hazardous materials moving through communities by rail.
 
Crude oil and ethanol fires caused by derailed freight trains are left to burn out on their own because first responders can't extinguish them, fire safety officials told the agency.
"They are no-brainers," Greg Noll of the National Fire Protection Association said during the second day of a two-day forum on safety issues linked to rail transport of crude oil and ethanol. "There is very little we as first responders are going to do."
 
Even multiple fire departments located near the site of a railroad tanker fire don't have enough foam to extinguish such blazes, which can spread from car to car. The DOT-111 tankers that carry most crude oil moved by freight rail can't quickly vent high-pressure vapors that build up inside the cars, railroad experts said during the first day of the forum Tuesday. They said those vapors can ignite into a thermal mushroom cloud.
 
Many suburban and rural community fire departments don't have enough training or manpower to handle railroad tanker fires, said Rick Edinger with the International Association of Fire Chiefs.
 
Deadly derailments of trains carrying crude oil and ethanol also have raised questions about tanker car design, but industry groups say they haven't been able to agree on the thickness of steel in the shell of new tankers.
 
Rail tanker manufacturers said they're ready to increase production to meet increased demand, but want regulatory certainty about the future standard.
 
Industry officials said a disagreement over one-eighth-of-an-inch thickness of steel for the shell of crude oil tankers — whether to continue using 7/16th-inch shells or move to 9/16th-inch shells — led them to ask federal regulators to promulgate a rule setting the standard for new tanker cars.
 
Industry groups agree ethanol can continue to be transported in tankers with 7/16th-inch steel shells, but the Renewable Fuels Association opposes plans to retrofit those tankers with safety upgrades.
 
Retrofitting the 29,000 tank cars that are used to transport ethanol would cost $3 billion, the association spokesman said.
 
Karl Alexy of the Federal Railroad Authority, however, said federal inspections of damage caused by 31 tank car fires found no compelling reason for treating ethanol tank cars differently from crude oil tankers.
 
The Greenbrier Companies, one of four major U.S. manufacturers of tank cars, supports a standard that would use the thicker 9/16th-inch steel shell, chief engineer Gregory Saxton said.
 
"The uncertainty of what we are hauling — we need some extra margin of safety to be able to deal with that," Saxton said. "Engineers deal with uncertainty by adding an extra margin of safety."

Wednesday, April 23, 2014

Nigeria to relocate tank farms to ease Apapa congestion.

 
 
Feasibility studies are reported to be underway for the relocation of tank farms in the major ports of Apapa and Tin Can Island in Lagos, Nigeria, to proposed sites in less congested areas of the country.
 
According to the federal government, two sites in Ogun and Ondo are undergoing due process considerations but both have deepwater drafts capable of receiving larger vessels into the tank farm jetties.
 
The tank farms' current location in the heavily congested Apapa area has been called a 'time-bomb' by Vicky Haastrup, chairman, Seaport Terminal Operators Association of Nigeria (STOAN), who believes the results of a fire outbreak at the port would be catastrophic due to the bottlenecks created by gridlock that results from the competition between tanker trailers going to load at the tank farms and trucks that are going into the seaport to load containers.
 
- See more at: http://www.tankstoragemag.com/industry_news.php?item_id=7681#sthash.zr3MB2Ph.dpuf

Tuesday, April 22, 2014

Should America export natural gas to Europe?

 
 
By Bruce KennedyMoneyWatch
 
As the crisis in Ukraine plays itself out, there are concerns any sanctions leveled by the U.S. or the European Union against Russia might prompt retaliatory measures from Moscow -- which currently supplies Europe with a large percentage of its oil and natural gas.
 
The crisis is also adding new fuel to an ongoing debate about whether American's oil and natural gas should be sold internationally -- to both create new markets and perhaps break Moscow's current energy choke-hold on European economies.
Some experts say there's a strategic, geopolitical argument to be made in favor of the concept. Russian President Vladimir Putin "has no qualms about using energy as a weapon," according to retired Marine Corps Gen. Jim Jones, a former NATO
 

And, not surprisingly, America's energy sector is echoing that same idea. The American Petroleum Institute, citing the unrest in Ukraine, is renewing calls for the Department of Energy (DOE) to approve exports of U.S. liquidfied natural gas (LNG).
"Our allies in Europe are eager for a reliable partner to enter the marketplace as a stable, secure source of natural gas, and American industry is ready to make that happen," Erik Milito, API Director of Upstream and Industry Operations, said in a press statement.
 
"Thanks to the U.S. energy revolution," he continued, "America is now the world's leading producer of natural gas, which means that our LNG exports could significantly strengthen the global energy market against crisis and manipulation. That's a win-win for our economy and for our friends."
 
Currently, under the Natural Gas Act of 1938, any person or company wanting to import or export natural gas in the U.S., including LNG, must first get authorization from the Energy Deparment. And as of last month, the DOE reportedly approved several dozen applications to export LNG to countries that have free trade agreements with the U.S.
 
But it's one thing to have natural gas reserves; it's another to export it without pipelines -- like the ones Russia has running through Ukraine and on to Europe. To create LNG, natural gas has to be super-cooled and then transported in specially-built, double-hulled ships. And the U.S. is not expected to have its first LNG export terminal up and running until mid-2015.
 
So even if large-scale LNG exports are approved, there's going to have to be some major infrastructure investments, says Ron Rizzuto, professor of finance at the University of Denver's Daniels College of Business.
 
"Since you have a capital investment involved it will be slower," he added, "but we're definitely going to see more replacement over time."
 
Rizzuto, who studies energy and transportation issues, also expects natural gas demand will increase globally as the U.S. brings more supplies on-line, but he expects prices to remain steady.
 
"I don't believe that we're going to go to $200 a barrel," he said. "The demand will be there but the increased supply will make it still pretty cost-effective. When you start using natural gas, there's a lot of availability there that will keep natural gas prices not as low as they are now. But prices will not quadruple or anything like that."
 
For the moment, natural gas continues to flow from Russia to Ukraine and onwards to Europe. And Paolo Scaroni, CEO of the Italian oil and gas ENI corporation, tells the Platts energy information group that -- even if the current tensions over Ukraine were to prompt Russia to shut off its pipelines -- there are enough natural gas supplies on-hand to get the EU through the remaining weeks of winter.
 
ENI is also a partner in the so-called South Stream gas pipeline, which is expected to transport gas from Russia via an underwater, Black Sea link to Europe -- without transiting the Ukraine -- starting in 2016.
 
But Scaroni warns that all these scenarios might change, if the EU opts to "take hard decisions toward Russia and the exchange of energy with Russia."

How Will a Shrinking Brent-WTI Spread Impact Oil Refiners?

 
 
Last week, the premium of Brent over WTI dropped to its lowest level in months. This recent fall is part of a downward trend that could have a negative effect on oil refiners, including Valero Energy (NYSE: VLO  ) and Marathon Petroleum (NYSE: MPC  ) . Let's take a closer look at the impact the Brent-WTI spread has on these companies' profit margins.
 
Despite the recent recovery of the oil market, the spread between Brent and WTI crude narrowed to single-digit territory. The chart below shows the progress of the premium of Brent over WTI year to date. 
Data from U.S Energy Information Administration 
 
As you can see, the premium fell from around $15 at the beginning of the year to around $5 as of last week. Moreover, the average first quarter premium was around $9 -- nearly $9 below the average recorded in the same quarter a year back. This lower premium cut into refiners' profitability in the first quarter. 
 
The chart below presents the changes in the quarterly gross profit margin of Valero Energy and Marathon Petroleum and the average quarterly premium of Brent over WTI. 
Data from U.S Energy Information Administration and Google Finance
 
The chart shows the relation between the profitability of these companies and the shifts in the Brent-WTI premium. As of the fourth quarter of 2013, the average premium was nearly $12 -- the highest level since the first quarter of 2013. This higher premium improved these companies' profitability. Their revenue also grew during the quarter. Therefore, the modest decline in the premium reduced their profitability during the first quarter. 
 
Based on the above, Valero Energy and Marathon Petroleum's first quarter reports are likely to show a modest decline in profitability. 
 
Finally, the recent harsh winter conditions could have reduced the throughput of Valero Energy and Marathon Petroleum in the past quarter. Nonetheless, both companies expect to increase their capital expenditure this year -- a signal for a potential rise in throughput. Valero Energy will increase its capex by nearly 9%; Marathon Petroleum's midstream and retail capital expenditures alone are projected to rise by over 130% over the next three years. 
 
Despite the weather concerns, according to the U.S. Energy Information Administration, crude oil refinery input reached an average of 15.41 million barrels per day in the first quarter of 2014, which was 5.6% higher than average during the first quarter of 2013. But the weather may have still had a negative effect on these companies' operations, which could result in lower than expected throughput for Valero Energy and Marathon Petroleum.
 
Final note
Based on the above, the fall in the premium of Brent over WTI has had a negative effect on leading refiners' revenue during the first quarter of 2014; it has also slashed their profit margins. Finally, the harsh weather conditions may have also adversely affected these companies' throughput in the first quarter of 2014, which could further reduce their revenue. 
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Emilio Lozoya of Pemex Chosen as 2014 “Petroleum Executive of the Year”

Emilio Lozoya
 
 
35th Annual Oil & Money Conference
 
NEW YORK--()--Energy Intelligence announced today that Emilio Lozoya Austin, CEO of Petróleos Mexicanos (Pemex), has earned the distinction of his peers as “Petroleum Executive of the Year.” The 2014 award, as selected by top global industry executives, will be presented to Mr. Lozoya on October 29 at an honorary dinner during the 35th Annual Oil & Money Conference in London. Energy Intelligence jointly convenes Oil & Money with the International New York Times.
“It is fitting that in the year of the historic Mexican energy reform, the CEO of the Mexican national oil company has been chosen by his peers to receive the Petroleum Executive of the Year Award.”
Emilio Lozoya was appointed CEO of Mexico’s state-owned petroleum company, Pemex, in December 2012, having previously served as the head of the International Affairs Office on the Transition Team of Mexican President Enrique Peña Nieto. He has also worked in international banking and was the cofounder of investment funds specializing in international private capital investments.
   
Lozoya played a key role working alongside Mexican President Peña Nieto to obtain passage of Mexico’s historic energy reform, which is poised to transform Mexico’s oil sector from being one of the world’s most closed energy markets to a new magnet for energy investment from around the globe. Under Lozoya’s leadership, Pemex is embarking upon its most significant corporate transformation in the past 75 years as it moves from being a state monopoly to a dynamic state enterprise that will compete for opportunities in the sector either on its own or in partnership with other oil companies.
“Emilio Lozoya is Chief Executive at a crucial point in Mexico’s energy history,” said Thomas Wallin, editor-in-chief and executive vice president of Energy Intelligence. “It is fitting that in the year of the historic Mexican energy reform, the CEO of the Mexican national oil company has been chosen by his peers to receive the Petroleum Executive of the Year Award.”
   
The Petroleum Executive of the Year selection process begins with Energy Intelligence eliciting nominations from the heads of the 100 largest oil companies determined by the annual company rankings in Petroleum Intelligence Weekly, an Energy Intelligence publication. These nominations are then voted on by a committee of previous award winners and former senior oil executives.
   
Now in its 18th year, previous winners of the Petroleum Executive of the Year Award include Peter Voser of Royal Dutch Shell (2013), Fu Chengyu of Sinopec (2012), José Sergio Gabrielli de Azevedo of Petrobras (2011), Andrew Gould of Schlumberger (2010), Christophe de Margerie of Total (2009), Paolo Scaroni of Eni (2008) and H.E. Abdulla al-Attiyah of Qatar (2007).
   
The 35th Annual Oil & Money Conference, convened by the International New York Times and Energy Intelligence, will be held on October 29-30.
   
About Energy Intelligence (www.energyintel.com)
   
Energy Intelligence (EI) is widely recognized as the leading and independent provider of energy and geopolitical news, analysis, data and research. Our reputation is built on quality coverage by award-winning journalists. We set the industry standard for excellence with flagship products that are indispensable for energy professionals. Through its Research & Advisory arm, EI also manages projects for clients internationally and compiles incisive reports and data analytics. The Oil & Money Conference in London and Global Energy Intelligence Day, Moscow feature among the high profile events that EI hosts. Over 60 years of expert energy coverage, EI is the guide to understanding today’s biggest stories and taking advantage of tomorrow’s opportunities.    

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