TPT March 2014

Global Marketplace

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.”

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.

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.

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M arch 2014