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New Crude-By-Rail Bill Could Upend U.S. Oil Flows

Rail sunset

The State of Washington’s House of Representatives has just passed a bill to reduce vapor pressure limits on crude-by-rail shipments through the state. If the bill becomes law, analysts say that it could create cost barriers for Bakken oil producers to ship their oil to the Pacific Northwest and could increase Washington State’s imports of crude from sources other than North Dakota, such as Alaska and Asia.

Washington’s House of Representatives approved on Friday an amended bill saying that “A facility may not load or unload crude oil into or from a rail tank car unless the oil has a vapor pressure of less than 9 pounds per square inch beginning two years after the volume of crude oil transported by rail to the facility for a calendar year has increased by more than 10 percent above the volume reported for the 2018 calendar year.”  

According to the Capitol Crude podcast of S&P Global Platts, featuring Brian Scheid, the bill could stop completely 150,000 bpd of Bakken crude by rail traffic into the state of Washington. More than 90 percent of Washington’s crude-by-rail traffic originates in North Dakota, Scheid said.

Another potential change in oil flows could be increased tanker traffic through Puget Sound as Washington’s five refineries could turn to other crude if Bakken flows are stymied by the new vapor pressure limits. Washington’s imports of crude oil from Alaska and Asia could increase, while North Dakota’s producers could start looking to boost their shipments to the U.S. Gulf Coast if they can’t ship their crude to Washington, Scheid said.

Related: The Case For $100 Oil

Washington State is not a crude oil producing state, but it has the fifth largest U.S. oil refining capacity, with the ability to process 638,000 bpd, according to EIA data

“If passed, this regulation would bring Bakken crude rail shipments to a halt, negatively impacting not only Washington’s economy, but also North Dakota, Montana, and others,” George Jamerson, the Director of Government Relations at The Heartland Institute, wrote in a commentary last week. 

The new vapor pressure limit of less than 9 pounds per square inch (psi) is well below the current 13.7 psi established by regulators in 2015 and the national standard of 14.7, Jamerson argues.

“This would create a considerable cost barrier for producers, as they would not only need to invest in new and expensive equipment to reach this pressure level, they would also be forced to remove certain qualities of the crude, making it less valuable to refiners,” he wrote.

By Tsvetana Paraskova for Oilprice.com

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  • Mitch Farney on April 17 2019 said:
    Maybe I missed something, seems like just a cap at 2018 volumes, unless they are willing to go with new rules, then they can do more crude by rail. Surprised it isnt a ban from that liberal state... must be they dont want increased tanker traffic risks

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