September 23, 2014 / 5:32 AM / 5 years ago

Exclusive: Bakken producers to push for status quo at crude oil hearing

BISMARCK N.D. (Reuters) - Hess Corp and other major North Dakota oil producers will tell the state’s top energy regulators on Tuesday that existing field practices used to prepare Bakken crude for rail transport are safe and that tighter standards could actually do more harm than good.

A worker climbs onto a crude oil train to set the hand brake at the Eighty-Eight Oil LLC's transloading facility in Ft. Laramie, Wyoming July 15, 2014. REUTERS/Rick Wilking

The comments, to be delivered at a special hearing of the North Dakota Industrial Commission (NDIC), come as federal, state and local officials grapple with how best to ensure the safe transport of the state’s crude oil, which has been linked to a string of fiery crude-by-rail explosions, including one last year in Quebec that killed 47 people.

The NDIC has asked companies, academics and others to testify about how any regulatory changes would affect the safety of Bakken crude oil, as well as producers’ costs.

“We believe Bakken crude oil is sufficiently prepared for transport in the field using conventional separation equipment already in place at well sites,” Brent Lohnes, director for field and plant operations at Hess, said in prepared testimony for the NDIC, according to an advanced copy obtained by Reuters.

More than 1 million barrels of crude are extracted each day from shale formations underneath North Dakota, making it the nation’s second-largest oil producer after Texas.

Most of that crude, though, contains higher-than-average concentrations of ethane, propane and other combustible natural gas liquids (NGLs).

Since most of North Dakota’s crude is exported via rail lines that eventually wind through urban areas, treatment practices - including whether mandating the removal of all NGLs before shipment - have become a hot-button topic nationally.

Representatives from Statoil also plan to testify at the hearing and echo comments from Lohnes, who is giving his testimony in conjunction with the American Petroleum Institute, the leading oil trade group.

The NDIC, a three-person panel chaired by Governor Jack Dalrymple, is deciding whether to require construction of as many as 50 large-scale “stabilizers” to remove NGLs before oil is loaded onto railcars or into pipelines.

Such equipment is widely used in Texas, though to build them in North Dakota would require yet another construction boom in a state growing weary of them.

The NDIC appears to be leaning toward a second option that would require existing field equipment be operated at specific temperatures and pressures to boost the amount of NGLs collected.

Yet stabilization, Lohnes said, would just create another separate product - NGLs - for which there are few transport options besides rail, forcing an even-more potent material onto tracks. Also, mandating specific temperatures and pressures for existing equipment could cause damage that would decrease NGL collection, Lohnes said.

On the federal front, the U.S. Government Accountability Office on Monday encouraged the Department of Transportation (DOT) to tighten its oversight of crude volatility testing. The DOT in July proposed safety rules for railcar design, but has not issued standards on whether NGLs should be removed from crude oil.

Editing by Terry Wade and Himani Sarkar

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