UPDATE 3-Bakken oil rail slows, regulators deny terminal closures

Fri Feb 28, 2014 6:05pm EST

By Jonathan Leff and Timothy Gardner

NEW YORK/WASHINGTON Feb 28 (Reuters) - Oil shipments by rail from the booming Bakken shale in North Dakota have slowed over the past two days, data showed on Friday, but a U.S. regulator knocked down rumors that some terminals have been shut down due to new rules.

Oil traders are on edge over concerns that an emergency order from the U.S. Department of Transportation this week requiring shippers to test all crude before it is carried by train could cut into deliveries of Bakken crude, as much as 800,000 barrels per day (bpd) of which is shipped by rail.

U.S. crude oil futures prices briefly spiked as much as 60 cents per barrel, or nearly 1 percent, earlier on Friday on speculation that two terminals may have been shut down for non-compliance.

The U.S. Federal Railroad Administration said talk of shutdowns was a rumor. The Pipeline and Hazardous Materials Safety Administration's has not caused the closure of any terminals as it carries out a series of unannounced inspections as part of its "Bakken Blitz" testing push, an agency source said. Prices held onto earlier gains even after the denials.

However, data from industry intelligence group Genscape did show that loadings at a dozen major Bakken rail terminals had fallen to around 345,000 barrels per barrel on average for the past two days, down from about 550,000 bpd over the previous two weeks, an unusual but not unprecedented dip.

Genscape, which uses cameras to monitor the number of tank cars filled with crude at the terminals, provided no explanation for the dip. Analysts said the ebbing flows could also be due to other factors, including a shortage of oil tank cars and slower rail traffic due to severe winter weather.

The DOT's emergency order called for mandatory testing and also prohibited companies from using the least-hazardous label for all oil shipments, the latest in a string of measures meant to ease public and political concerns over the safety of moving oil by rail after a string of fiery derailments.

Still, many remain concerned. New York Governor Andrew Cuomo said on Friday that state authorities had begun inspecting some of the mile-long oil trains that are now bringing some 200,000 bpd of crude to terminals in Albany.

"We are taking action to safeguard our communities from the potential risk of crude oil shipments by launching more aggressive and enhanced enforcement of rail safety," Cuomo said.

THREE TERMINALS IDLE FOR DAYS

Operators Enbridge Inc and Dakota Plains Holdings said their terminals were operating as normal. Other big operators including EOG Resources Inc and Global Partners LP did not immediately reply to requests for comment.

The Genscape data, made available to Reuters, showed that only 220,000 barrels were loaded at the terminals on Wednesday, the day after the DOT order, an exceptionally low rate.

On Thursday, seven of the 12 terminals monitored by Genscape loaded a total of 470,000 barrels; five terminals did not load at all, although two of those had been operating on Wednesday, according to the data.

One executive with a large North Dakota terminal said the new testing requirement should not pose a problem for most operators, who were already testing their crude oil to ensure it was properly classified prior to shipment.

"None of the big terminals are surprised at the ruling," said the executive.

A BLIP OR A WORRY?

A week ago, the DOT and the industry's Association of American Railroads agreed to another set of measures meant to restore public confidence, including increased inspections, better braking systems and slower speeds through urban areas.

That set of rules was expected to limit so-called "takeaway" or loading capacity of oil-by-rail shipments by some 30,000 to 37,000 barrels per day (bpd), or up to 5 percent of all trade, according to Bernstein Research.

Other factors are also hindering the thriving oil-train trade, a trend that emerged abruptly in the past few years as Bakken shale oil production outpaced pipeline capacity. Such crude oil shipments, rare prior to 2010, have surged to near 900,000 bpd, more than a tenth of total U.S. production.

This year's exceptionally cold weather has caused a "record deterioration in service performance" for big U.S. rail operators, contributing to slower oil-rail volumes since early December, according to a note this week from PIRA Energy Group.

"The performance deterioration registered in 2014 (so far) translates to a 1.5-day increase in door-to-door transit time on a single car move, and about a 12-hour increase on a typical unit train move," PIRA said.

There are a total of some 15 oil-rail terminals in North Dakota with a total capacity of 1.2 million bpd, according to data from the North Dakota Pipeline Authority.

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