North Dakota moves to limit volatility of oil shipped by rail

North Dakota's top energy industry regulator unveiled new rules Thursday that would require companies to reduce the volatility of crude before it's shipped by rail.

State Mineral Resources Director Lynn Helms told the state Industrial Commission that all crude from North Dakota's oil patch would have to be treated to remove certain liquids and gases to "ensure it's in a stable state" before being loaded onto rail cars.

"The focus," Helms said, "is safety first."

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Oil trains in the U.S. and Canada were involved in at least 10 major accidents during the last 18 months, including an explosion in Lac-Mégantic, Quebec, that killed 47 people. Other trains carrying Bakken crude have since derailed and caught fire in Alabama, Virginia and North Dakota.

At the same time, the amount of oil shipped by rail in the U.S. has increased by 13.4 per cent in the last year, according to the Association of American Railroads.

The Industrial Commission, which regulates North Dakota's oil and gas industry, appeared to agree with the proposal in principal but wanted more time for review. The panel said it would hold a special meeting by Dec. 11. The proposed rules, if adopted, would take effect in February.

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Gov. Jack Dalrymple, who heads the commission, called the proposal "an excellent working draft." The panel also includes Attorney General Wayne Stenehjem and Agriculture Commissioner Doug Goehring as members.

Ron Ness, president of the North Dakota Petroleum Council, said in an interview that regulators are unfairly focusing on crude oil when the "root of the issue" is ensuring trains transport it safely.

Industry pushes back

Industry officials say stripping liquids and gases from Bakken crude would result in even more volatile products that would still have to be shipped by rail. It also would result in additional emissions due to heating the oil to remove gases, said Ness, whose group represents more than 500 companies working in the state's oil patch.

Ness said the group would submit comments on the new rules.

"We have some pretty significant concerns and there are a lot of unintended consequences," he said.

Helms said the goal is to ensure crude has a vapour pressure below 13.7 pounds per square inch, which is less than the 14.7 psi threshold that is recognized national standards as being stable.

About 80 per cent of North Dakota crude already falls well below the proposed standard but required testing would ensure that all of it does, he said.

Winter blend gasoline that contains 10 per cent ethanol is rated at 13.5 psi, Helms said.

The proposed rules will make North Dakota crude "behave like the gasoline you put in your car," Helms said.

The cost to industry to test crude to ensure compliance with the proposed standard will be "significant but not substantial," Helms said.

The proposed rules would not hinder investment or change "the economics of the Bakken," Helms said.

Canada's transport minister Lisa Raitt issued a directive last October ordering shippers and railways who ship crude oil to test it first, so it can be classified according to its volatility. Any crude shipped by rail that is not tested would be shipped with the most hazardous rating, the directive said.

Raitt also called for the rapid phase-out of Dot 111 cars, the tankers involved in the Lac-Megantic crash, which are considered too thin to carry volatile compounds. CN and CP have both issued timetables to phase out the cars.