After the Boom: The North Dakota Oil Industry, Part II

 /  Jan. 14, 2016, 8:55 a.m.


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The following story was made possible through the Gate Reporting Grant: an annual stipend supported by the Institute of Politics and awarded to writers pursuing complex and long-form investigative stories. In 2015, the grant was awarded to Dake Kang and Sean Maher. The following is the second part of their investigation into fracking in North Dakota. The first installment can be found here

REGULATION/GOVERNMENT

On July 6, 2013, a seventy-two-car freight train filled with Bakken crude oil pumped in North Dakota was parked on a graded hill outside the town of Lac-Mégantic in Quebec. It slipped from place, ran into the center of town, derailed, caught on fire, and exploded. When the smoke cleared, thirty buildings were destroyed, the center of town was leveled and forty-seven people were dead.  It was the deadliest train disaster in Canada since the 1800s.

Since the immediate cause of the disaster was an air brake failure on the train, blame was leveled at the train’s operator: the Montreal, Maine, and Atlantic Railway. Under the weight of some $200 million in damages, they filed for bankruptcy.

This danger, however, is not unique to one rail company. Across North America, aging rail infrastructure jostles obsolete tanker cars, releasing volatile gasses into the “headspace” above crude oil.  These tankers, (designated as DOT-111 cars), have long been known to be insufficient for handling high gas pressures, and many were built to standards set in the 1970s. In an accident, they are prone to being punctured, leaking oil.

In 1991, the National Transportation Safety Board (NTSB) recommended that DOT-111 cars no longer carry flammable materials.  Yet, because the NTSB is an advisory board which issues non-binding recommendations, thousands of DOT-111 cars remain on the rails.

These problems are compounded by the unavoidable facts of geography: the Bakken is in the western plains, far from refineries on the East Coast that are able to process sweet crude.  This means that oil must travel many miles, some of them through populous areas, and undergo many changes in temperature before it is processed.  When these factors combine by chance, when a tank strained by pressures beyond what it was designed for is involved in an impact it is more likely to fail, releasing explosive gases and oil.  When these substances are set alight by sparks from the wheels, the most likely result is a catastrophe.  

There’s a simple solution: pipelines. But the majority of oil still travels over rails, mainly because of opposition to pipelines from landowners and environmentalists, who claim pipelines would increase the risk of leaks and raise carbon emissions.

THE CRUDE

Amid the debate about rail safety following the Lac-Mégantic disaster, far less attention was paid to another ingredient in the danger, the contents of the freight cars: Bakken crude.

For years, it was assumed Bakken crude was no more volatile than, say, Texas sweet crudebut after numerous explosions across the country, some started to suspect that there was something seriously wrong with that assumption. The Petroleum Council, the National Transportation Safety Board, and the Federal Railroad Administration commissioned a series of reports on the volatility of Bakken crude, all of which concluded that Bakken crude was more likely to accidentally explode in transit than other types of oil.  Last year, in response to these reports, the North Dakota state government rolled out new regulations to lower the danger:

“We’re now telling companies you need to heat and pressurize your oil to a certain temperature and pressure at the well site, and have a product that is no less than 13.7 PSI (pounds per square inch),” said Alison Ritter, Public Information Officer at the Department of Mineral Resources.

Ritter said North Dakota was the only state to base its regulations on scientific evidence, presented at a public hearing in September 2014.

But when Bakken crude first came under scrutiny, the North Dakota government’s first reaction was to deny that it was dangerous.

“We’re studying the state’s oil to dispel this myth that it is somehow an explosive, really dangerous thing to have traveling up and down rail lines,” said Lynn Helms, the Director of North Dakota’s Department of Mineral Resources, back in December 2013, as the Department was preparing a white paper on the qualities of the crude.

Alison Ritter Public Information Specialist at the North Dakota Department of Mineral Resources

Alison Ritter Public Information Specialist at the North Dakota Department of Mineral Resources

At the same time, Ritter, speaking on behalf of the North Dakota Industrial Commission, said, “until we have data that reflects otherwise, crude is crude, and it’s been moved by train for a long time.”

Two weeks later, on December 30, 2013, a Burlington Northern Santa Fe train carrying oil collided with debris from an earlier derailment a mile outside Casselton, North Dakota, the hometown of sitting North Dakota Governor Jack Dalrymple.

After that, the dialogue shifted to acknowledge that there was still much yet unknown about the makeup of Bakken oil, and that it could pose greater danger than other types of crude.

Since oil is extracted from shale rock beneath the earth, the qualities of oil drawn from neighboring wells might be dramatically different, making it difficult to anticipate how Bakken crude will behave compared to oil drilled elsewhere.

These investigations into the makeup of Bakken crude come two years after the explosion in Lac-Mégantic, the deadliest accident to date, in which the unique composition of Bakken oil may have been a factor. Representatives from the Montreal, Maine, and Atlantic Railway railroad company, the operator of the derailed train, allege that the accident was caused in part by incorrect information that they received about the oil. The oil was mislabelled as “Packing Group III” a designation used for less hazardous substances, when in fact, due to the pressure Bakken oil exerts and its flashpoint, it should instead have been classified as Packing Group “II or I,” which is handled with greater caution.

The massive amount of energy contained in large volumes of crude oil means that these accidents have the potential to cause multiple deaths and massive property damage. A single oil train can carry more than one hundred cars, enough to fill four-and-a-half olympic-sized swimming pools. According to ForestEthics, an environmental NGO that sued the Department of Transportation over the cars in 2014, an oil train explosion will level a blast zone of 1,600 meters, spreading flames and contaminating still more land with the toxic byproducts of unprocessed oil.

So far, explosions of Bakken oil have mostly occurred in less densely populated areas, limiting the amount of destruction. Even Lac-Mégantic, the site of the largest such disaster to date, was only a town of six thousand. But if a Lac-Mégantic-type accident happened in a densely populated urban area, the cost in dollars and lives could be orders of magnitude higher.

“I live in fear of waking up to a bunch of text messages and emails because there’s been a hundred-car explosion in Chicago and three hundred thousand people are vaporized.  Unfortunately, that is a very real possibility if something’s not done,” said Scott Smith, a nonprofit researcher, in an interview with Salon.

In fact, Chicago, as a major rail hub between North Dakota and the Northeast, sees more volatile crude pass through its borders in train cars than anywhere else in the entire country - with some 40 trains coming through the region every week.

Residents living near train tracks might be alerted to the passing of a train by the clamor of its wheels or the trumpet blasts of its horn, but few are aware of the potential danger passing them by.

Speaking to the Daily Caller, an Albany newspaper, United States Energy Secretary Ernest Moniz said, “The Bakken shale has gone from close to nothing to a million barrels a day in a very short time, and the infrastructure certainly just isn’t there, certainly in terms of pipelines to manage that.”

CONFLICTING VISIONS

Since Lac-Mégantic and Casselton, the accidents have not stopped, raising the question of whether they could have been prevented. Some feel regulations have been too little, too late. State Senator and one-time candidate for governor, Tim Mathern (D–Fargo) has long called for increased scrutiny of the oil industry.

“Oil companies have the best scientists in the worldthey know better than the government what is in that product,” Mathern told the Gate in an interview, questioning the claim that no one in the industry knew that Bakken oil was more volatile than other forms of crude. “It’s not like I’m a better scientist than them. They know the science. They have the engineers, they have the expertise, but they’re pushing the product as fast as they can to take advantage of the profit.”

North Dakota Senator Tim Mathern (D)

North Dakota Senator Tim Mathern (D)

Senator Mathern has mixed feelings about the recent regulations put in place. Although he supported the measures taken, he pointed out these changes were only made after numerous deaths; it was completely possible to have made the changes before, he claims. So why wasn’t it done earlier?

“It’s a lot cheaper to ship it without treating it regarding its inflammability,” Mathern said. “It’s a lot cheaper to ship it without double hulling railroad cars.”  

These are just a few examples of the “shortcuts” Senator Mathern sees the industry taking, a tendency which he argues can “only be prevented through a strong public policy intervention.”

“The incentive for a corporation is to deliver profit; it’s not to deliver a higher-cost product to prevent degradation of the environment,” Mathern says.

He also questioned oil company claims that they have proactively strived to minimize negative impacts: “When they do things that are good for the environment, and they advertise that they do it, if you look behind it enough, you will find that some regulation required that, or some citizen group developed enough power to demand that change.”

Updated standards were only put in place two years after the Lac-Mégantic disaster, Mathern says.  He alleges that the new standards change came about because oil companies saw the writing on the wall: with headline after headline documenting the dangers posed by Bakken oil, it wouldn’t be long before municipalities started to balk at having Bakken oil pass through their jurisdictions.

Mathern’s view, however, is in the minority. He’s a rare Democrat in one of the reddest states in the nation. In 2012, Mitt Romney won the state by almost 20 percentage points; North Dakota hasn’t voted for a Democrat for president since 1964. The entire executive branch is Republican, as are 71 out of 94 members of the House and 32 out of 47 members of the Senate. On the national level, North Dakota’s sole prominent Democrat in the state is Senator Heidi Heitkamp, considered one of the most conservative Democrats in the Senate.

“There definitely is a ‘hands-off’ approach to regulating a lot of industries in the state,” says Alison Ritter, of the Department of Minerals. “North Dakota likes to boast that they’re industry friendly, whether you’re talking about a tire industry or whether you’re talking about the oil and gas industry. Generally there is an approach to only step in when you really need to.”

Ritter, in public neither a Republican nor a Democrat, was not directly responding to Mathern, but sounded as though she was at times:

“Yes, there are some folks that criticize that, that say that North Dakota needs to be heavy handed and needs to bring the hammer, but we only do that when we feel like it’s really necessary. We can have a three strikes and you’re out approach, where you get a field level warning, a written warning, and if need be, rises to the level of a complaint,” Ritter says. “You need to have the ability to let that business operate and not put so many rules and regulations on them that they can’t work, and can’t function.”

In illustrating her point, Ritter drew attention to the fact that North Dakota modified and improved seventy-four sections of legal code in response to regulatory issues in the past two years. One highlight was new regulations on gas flaring, the practice of burning off excess residue gas from pumping crude a practice that can generate harmful byproducts.

“We have a plan in place now where companies are required to capture that gas,” Ritter says. “They have to meet their monthly gas capture gas goals - for 2015, the gas capture target is 77 percent. They have to capture 90 to 95 percent of the gas by 2020.”

Senator Mathern believes these regulations were too little, too late. During his 2008 run for governor of North Dakota, he called for proactive steps to accommodate an oil boom action, recommending that North Dakota build pipelines and an oil refinery in anticipation of the buildup rather than letting industry dictate the pace of development.  

“We would have been so much better off if we had our own refinery.  Now there's a few refineries being built, which is great, I support that, but they’re about five years too late.  We have pipelines going in, which is great, but it’s late. We’ve burned off enough energy that we could have lit up all of Chicago,” Mathern said, gesturing his arm upwards in defeat.

“We have lost ground.  We have lost income.  We have lost part of our legacy.  We have created damage to our environment.”

But oil companies argue that some of Mathern’s proposed regulations would be impossible to implement.  Jeff Herman, a regional manager for Petro-Hunt LLC, told the Gate that building gas pipelines in advance of drilling wells was impossible because, until the well starts producing, companies can’t know how much natural gas it will provide.  Building a pipeline that is too small would lead them to flare off excess gas anyway, while a pipeline that is too big would not be cost effective.

Much of this is down to the political philosophy of North Dakota. Government in the state is small, and highly localized. Many state legislators list their personal phone numbers for constituents to reach them. Because the legislature meets for only eighty days in odd numbered years, most lawmakers have other jobs.  This has allowed the oil and gas industry to exercise an outsized influence in the politics of the state.

PLAYING POLITICS

$1.3 million.

That’s the amount of money the oil industry spent in the 2014 North Dakota elections. Though the amount is peanuts compared to national election spending (Obama’s official campaign spent over $1.1 billion in 2012), in a state that prides itself on having built its State Capitol building for only $2 million, it’s a hefty stately sum.

The industry spent even more fighting a referendum on Measure 5, a proposal that would have allocated 5 percent of oil tax revenues to conservation purposes.

“Energy buys campaigns,” Mathern says. 

Because the North Dakota assembly convenes every two years, there are few career politicians in the state. In the past, this has meant that campaigns were largely run by candidates and their committees. Discussing the 2014 campaign, Mathern says that the influx of money has allowed candidates to “hire professional consultants” and “top notch marketing firms” to run their campaigns.

One of two chambers of the North Dakota Legislative Assembly

One of two chambers of the North Dakota Legislative Assembly

But at the same time, environmental conservation groups such as Ducks Unlimited also got into the fight over Measure 5, throwing in an eye-popping $4.8 million in a state where total campaign spending totalled just over $17 million.

These contributions drew criticism from oil’s proponents. “With our newfound prosperity, we think there are a lot of organizations like Ducks Unlimited who see our surplus as an opportunity to divert money for their special purposes,” State Senator David Hogue said in a comment to the Forum News Service. In the end, however, there was little question about which side had greater support. Measure 5 was defeated in a landslide, with 79.38% of North Dakotans voting against it.

Election spending has been going up dramatically in recent years. Only four years prior, in 2010, spending clocked in at just over $7.9 million, a figure that doubled in 2012, suggesting that political spending on both sides is heating up.

There’s little question, however, in which side has been more successful. Measure 5 was defeated in a landslide, with 79.38 percent voting against.

During the 2012 gubernatorial election, the oil and gas industry contributed more than any other identifiable industrial sector to the campaign of current Governor Jack Dalrymple, giving a total of $378,905 in donations, 10 percent of the total funds raised.  This is not an uncommon occurrence; in 2012, the oil and natural gas industry made contributions in 65 of 75 legislative races.

This imbalance is occasionally quite lopsided.  Oil and gas industry contributions to sitting Republican Senator John Hoeven (R) between 2009 and 2012 totaled $284,737, out of total contributions of $4,083,424.  The total purse of his opponent, Tracy Potter (D), in the 2010 election, Tracy Potter (D), was $103,569.

The Center For Public Integrity gives North Dakota an F for political financing, ranking it forty-fifth of fifty states. It does, however, come in first for electoral oversight —  a curious combination that speaks to the alleged “folksiness” of North Dakota politics. The Secretary of State’s motto?

“Voting in North Dakota is easy as pie!”

Oil and gas companies are used to operating in a varieties of national and international contexts, and have been able to further their interests quite well in North Dakota.  In our next segment, we’ll look at some of the unique aspects of North Dakota politics, and what they’ve meant for regulation of the oil industry and the spending of oil revenues.

The image featured in this article was taken by the author. 


Dake Kang and Sean Maher


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