Oil and Gas:

Former pipeline safety chief McCown discusses progress on new oil-by-rail regulations

Following last month's North Dakota oil train derailment, the discussion over the safety of oil-by-rail transport has intensified among regulators, lawmakers and industry. During today's OnPoint, Brigham McCown, former pipeline safety administrator at the Department of Transportation and now managing director of United Transportation Advisors, discusses potential risks associated with shipping oil by rail while industry awaits new tank car safety regulations. He also weighs in on how midstream companies should focus their infrastructure investments.

Transcript

Monica Trauzzi: Hello and welcome to OnPoint. I'm Monica Trauzzi. Joining me today is Brigham McCown, former pipeline safety administrator at the Department of Transportation and now managing director of United Transportation Advisors. Brigham, thanks for coming back on the show.

Brigham McCown: Hi, thanks for having me back on the show, Monica.

Monica Trauzzi: So following the recent oil train derailment in North Dakota, the discussion over the safety of oil by rail transport has really heated up in the United States. PHMSA has said that Bakken crude may be more flammable than traditional crude. From your experience is that the case, and how should it be handled from a regulatory standpoint?

Brigham McCown: Well, there are different blends of crude oil depending on basically how pure it is. And the more pure the oil, the lower the flashpoint, meaning it could be more flammable. But all crude oil is what we call a class 3 flammable liquid, and so there are just different precautions depending on just how flammable it is. But this isn't something new. We've been transporting rail, or transporting crude oil by rail for decades. But I think what you're seeing is each and every year we're having a 45 percent increase or more on the amount of crude by rail, and so even if the accident rate per ton mile stays the same, you're going to have a few more accidents.

Monica Trauzzi: So PHMSA is working on a final rule for tank car safety right now but we might not see that for some time. In the meantime oil continues to be shipped by rail. How great of a risk is there until those new regulations are in place?

Brigham McCown: Well, you know, due to the North American energy renaissance we are finding oil in places that traditionally we haven't found oil. And without adequate pipeline infrastructure it means that the oil has to get to market. And so what you're seeing is increases by rail, increases by truck. Earlier this week Transportation Secretary Foxx said you're going to see something coming out of the administration in a matter of weeks, not months. He's feeling the pressure. I think FRA and PHMSA's also feeling the pressure. And I suspect we'll get something out of USDOT within just a couple weeks.

Monica Trauzzi: So we often hear this pipeline versus rail debate. Is there a false narrative there, though? Because some folks make the case that, you know, we get enough pipelines in place, we're going to do away with oil by rail. But both methods will continue to exist, isn't that the case?

Brigham McCown: Absolutely. I mean, we need all forms of transportation. We need truck. We need rail. We need pipeline. And, you know, until we get adequate pipeline infrastructure in the ground, rail will be the heaviest used medium. And, you know, I prefer pipelines for long-distance transportation. They have a little bit of an edge in safety, mainly because they're under the ground and they stay out of the way of us as we got about our daily business. And they're a little bit cheaper and have less of a carbon footprint. But the truth is we need rail. We've always used rail and rail is here to stay.

Monica Trauzzi: Are U.S. companies disproportionately investing in oil recovery over infrastructure?

Brigham McCown: No, I don't think so. It's a matter of, just like we had the migration to the south, to the Sun Belt after the Rust Belt. Infrastructure generally lags movement of people or products by a few years. That's not uncommon. And in this case pipeline infrastructure and even rail infrastructure is privately funded. But that being the case, I will say that blocking things like Keystone XL and other pipeline projects aren't making things better. It's not going to keep the oil in the ground, no matter what the environmentalists say. The oil is going to get to market and we're seeing that today.

Monica Trauzzi: So make that link for me, 'cause I'm a little unclear on it, how an incident like this plays into the Keystone debate. I mean, how would Keystone impact the transport of U.S. crude?

Brigham McCown: Well, the Keystone XL, or what I call Keystone XL North, it's the part from Alberta now down to Steele City, Nebraska. It's the only piece that hasn't been done. That pipeline is designed to carry up to 25 percent of its capacity with Bakken crude oil. So it will relieve congestion in the Bakken and it will relieve some of the pressure on rail.

Monica Trauzzi: So how should midstream companies be focusing their investments as they continue to manage the shale oil boom and in many cases use oil by rail as their mode of transport?

Brigham McCown: Well, so far, you know, the price point's worked out for everybody. Obviously rail is a little more expensive than pipelines, in some cases up to three times. But that's pretty much been absorbed up to this point. But moving forward I think additional pipeline infrastructure is going to be required if companies are going to remain cost competitive, because even though transport is a small piece of the overall price, it is still a significant portion.

Monica Trauzzi: We had Breitling Oil and Gas CEO Chris Faulkner on the show recently, and he said that he believes that oil by rail would still be the winner. Crude by rail will be the winner. There's still going to be a big, big increase there. Do you agree with that?

Brigham McCown: Well, I think rail's already been a big winner from the crude oil, and you know, Matt Rose, BNSF, says he's up 45 percent from the year before and that's going to continue. It's about growing the pie. As we reach the point where North America gets closer to becoming energy independent as we're producing more, now that we make more than we import, first time in decades, everybody's a winner. The pie is getting bigger, and that means that pipelines, rail, and even truck transport are going to have a role to play.

Monica Trauzzi: You mentioned Keystone. Let's get a question in about that. The State Department's final environmental impact statement on Keystone is expected soon. How much of a change are you expecting from the draft?

Brigham McCown: I'm not expecting any really. I mean, this has been the most thoroughly scrutinized pipeline project in our national history. We won World War II in less time than this has taken, and really I don't think there is any policy expert inside the Beltway that doesn't believe this has become a political issue at this point.

Monica Trauzzi: All right, we'll end it right there. Thank you for coming on the show. Nice to see you.

Brigham McCown: Thank you.

Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.

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