What’s bringing Bakken’s black gold to the PNW?

Oil production in the U.S. has come back in a big way, which means all five refineries in Washington are increasing their capacity to meet the persistent demand of global oil consumption.

In 2013, the U.S. consumed an average of 18.89 million barrels of petroleum products each day, slightly more than the year before (18.49 million barrels per day), according to the Energy Information Administration (EIA). Crude oil production in the U.S. continued to surge, from 5 million barrels per day in 2008, to 7.4 million barrels per day in 2013. It is one of the biggest booms in oil production in the U.S. and its heart lie in North Dakota, a state with a population less than one million.

2013 was a good year for North Dakota, which is now the second largest producer of crude oil in the country. The state produced more than 313 million barrels of crude throughout that year, an average of 858,000 barrels of crude oil per day. As of April, the state produced more than 1 million barrels of oil per day, according to the North Dakota Department of Mineral Resources.

The surge in oil production is primarily due to the Bakken Shale formation. The formation is composed of about 24,000 square miles, roughly the size of West Virginia, according to the American Petroleum Institute. It contains an estimated 7 billion barrels of recoverable crude oil and is a part of the Williston Basin, an area that encompasses about 150,000 square miles of North Dakota, South Dakota, Montana, Saskatchewan and Manitoba. A couple hundred miles due southwest lies the Powder River Basin in Wyoming, home to the eight largest coal mines in the U.S. and the potential starting point for the debated Gateway Pacific Terminal facility at Cherry Point.

But for a state with only one oil refinery, energy production more than triples the state’s energy consumption, which is why oil companies across the country are craving a bigger slice of the Bakken pie. Companies in Washington are no exception.

The only issue is that, by comparison, the states east of the Rockies are teeming with oil pipelines, terminals, refineries and power plants, while the Pacific Northwest remains relatively undeveloped.

“There is a lot more expansive infrastructure east of the Rockies, where the West Coast is an oil island and not connected with the rest of the country,” said Frank Holmes, director of the Northwest region and marine issues at the Western States Petroleum Association. “It has an isolated market, if you will.”

With no pipeline to carry the crude and such a large distance to cross, how will the crude get to Washington?

The answer: Burlington Northern Santa Fe Railway Company (BNSF).

Developing the industry

Eighteen crude-by-rail terminals have been built in the Bakken oil fields, some of which are already bound for Washington. Even so, industry leaders, such as British Petroleum, Tesoro, Phillips 66 and Shell are preparing to expand.

Some of the Washington refineries have already developed crude-by-rail facilities. Other facilities are in the works, according to a report by the Washington Department of Ecology. Each crude-by-rail train can carry about 100 railcars.

The most recent crude-by-rail upgrade was the completion of British Petroleum’s facility last December, which can now receive one train per day. A couple miles south, the Phillips 66 refinery in Ferndale, is also on its way to upgrading a crude-by-rail facility that can accommodate one train per day as well. The project is expected to be completed by the end of the year, according to a Phillips 66 spokesperson.

Another crude-by-rail upgrade was in 2012 at the Tesoro refinery in Anacortes, Washington. The refinery can receive one train per day has already begun taking on the Bakken imports. The other Anacortes refinery, operated by Shell, has proposed crude-by-rail upgrades that can take on two trains per day and is in the environmental review process.

The U.S. Oil refinery in Tacoma, which processes the least amount of crude is expected to begin an upgrade that could bring 15 trains per month at the end of 2014. (Other crude-by-rail facilities in Washington have been proposed as well, including a Tesoro-Savage terminal in Vancouver that could take up to eight train loads per day. If approved, the existing and proposed crude-by-rail facilities could take on a total of about 22 full trains per day.)

Those five refineries are capable of turning 631,700 barrels of crude oil per day into petroleum products, according to the EIA. Their location along the Puget Sound provides tanker transportation up and down the West Coast, as far North as Alaska and as far West as Honolulu.

The closest refinery to the Puget Sound is in Great Falls, Montana, about 500 miles away. The second nearest refinery is in California’s Bay Area.

Unlike Montana and California, Washington is not an oil producing state. The Evergreen State’s refineries are a result of the rise and decline of oil markets around the world, Holmes said.

“Initially, the [Washington] refineries were built to refine Canadian crudes,” Holmes said. “All through the ‘60s and ‘70s that was the crude oil source.”

Much of the crude oil in Washington has arrived from long distance routes, travelling several hundred miles from the oil sands in east Alberta along the TransMountain Pipeline; from the TransAlaskan Pipeline and across the Gulf of Alaska; from countries in the Middle East and South America, across the ocean in barges. The Bakken crude, however, travels from a more direct route.

“There are no pipelines infrastructure-wise to bring that crude oil to market,” said Holmes. “That’s why that crude is being put on rails, which is the next best thing.”

Despite this, the Pipeline and Hazardous Materials Safety Administration sent an advisory stating that the Bakken crude may be more flammable than traditional crude. The advisory came after recent derailments carrying the Bakken crude resulted in fiery explosions, including one that killed 47 people in Lac-Mégantic, Quebec, in 2013.

Legislation to increase the safety of the tankers has so far failed. However, Holmes expects regulations on the crude oil shipments take effect after Washington’s 2015 legislative session.

Boomtowns, then and now

In the early days, dense brush, untouched forests and thick bogs made land travel difficult for settlers in northwest Washington. Though the land was ripe with resources, travelling was only effective via boat, especially in Whatcom County. That was before the railroads came in.

“We were looked to as a resource extraction place, and that’s really what the railroad was about: Taking these things, this lumber and coal, and to some degree the fish,” said Whatcom Museum of History and Art historian Jeff Jewel. “The beauty of the west back in the 1880s and 90s, was that little people kind of put it together. Little people, I mean, they’re not giant big corporations.”

In 1887, the eastern connection was established in Washington by the Great Northern Railway Company. The Great Northern Corridor is a rail system spanning almost 3,500 miles and connects Chicago to Vancouver, British Columbia, and has been the Pacific Northwest’s connection to the Midwest now for more than a century.

The various companies in 1800s and early 1900s that pieced the railroad in Whatcom County together have since been absorbed by BNSF. BNSF’s network of railroads connect the Puget Sound to the historic corridor and to North Dakota.

Train traffic in Washington once used to haul goods out, such as lumber, coal and salmon, is now used to haul goods in. Among those goods is the Bakken crude.

Crude oil production in the Bakken has only been a recent phenomenon. Though crude exploration in North Dakota has been ongoing since the early 20th century, production of crude oil did not begin until the 1950s. Only recently has production spiked.

New technology in hydraulic fracturing, also known as “fracking,” has increased crude production in new areas, Holmes said. This new technology of extraction forces pressurized liquid into wells, breaking up bits of rock formation underground to create an oil flow. Similarly, using new technology to drill into the oil shale horizontally has also increased in oil extraction. Annual oil production in North Dakota had been hovering around 30 million barrels per year in the early 2000s, according to the EIA. By 2008, that number nearly doubled and has been increasing since.

This past March, North Dakota produced about 30.2 million barrels of crude oil, the largest amount in the state’s history. North Dakota is second only to Texas (which also beat its own record last March with nearly 92 million barrels that month).

Increased production over the last few years has also caused a large increase in crude-by-rail export volumes since spring 2011, according to the North Dakota Pipeline Authority. The organization reported exports of less than 100,000 barrels per day in spring 2011 but more than 800,000 barrels per day at the end of 2013. The East and West coasts have been the primary recipients of these shipments.

The EIA reported that the Bakken shipments to the East Coast, known as PADD 1 (Petroleum Administration Defense District), have resulted in lesser foreign imports. Similar results have been found in the West Coast, known as PADD 5, which contains Washington, Oregon, California, Nevada, Arizona, Alaska and Hawaii.

‘Oil is now’

Crude oil production in the PADD 5 primarily comes from California and Alaska (which are ranked third and fourth in U.S. production, respectively). According to the EIA, the region’s total crude oil production reached 406.5 million total barrels 2013. Additionally, the region received almost 400 million barrels of crude from outside the U.S. that year, primarily from Canada, Iraq, Saudi Arabia and Ecuador.

But now the imports from within the U.S. have started shifting. Since 2008, the same year the Bakken oil production began its exponential increase, imports from the Midwest, and the Bakken oil fields, have seen a slow increase in from about 11.5 million barrels per year to nearly 15 million, according to the EIA. Meanwhile, imports from the Gulf Coast have decreased from about 62 million barrels per year to 51 million. PADD 5’s own production in Alaska has also decreased significantly, Holmes said.

“All oil fields decline over time. We’ve seen a shift from Canada to Alaska, to foreign oils, to the domestic market in the Bakken,” Holmes said. “With the declining product in Alaska, this is a new source in domestic oil production.”

The West Coast oil market’s slogan is similar to an organic farmer’s: Buy local, think global. The crude produced, imported and refined in PADD 5 generally stays within the market, Holmes said. That includes the products made in Washington, which are primarily transportation fuels. Those products are delivered via Olympic Pipeline as far south as Portland, Oregon or on freighters, between the Aleutian Islands, Honolulu and the I-5 Corridor.

The system in place has worked, but the Bakken Boom is forcing its growth in Washington.

“I can see sighting a pipeline, getting all the permits for a pipeline taking at least a decade. Oil is now,” Jewel said. “We’re consumers. We need stuff.”


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