U.S. energy traffic jam
BY MARKUS I. BRYANT, GENERAL MANAGER
Last month, I reported on the Obama administration’s Department of Energy (DOE) releasing its first-ever Quadrennial (every fourth year) Energy Review (QER). As regular readers of this column know, I have been harshly critical of the Obama administration’s Environmental Protection Agency (EPA)-proposed rules for limiting greenhouse gases emitted by burning fossil fuels. These proposed rules will result in higher electric rates and decreased grid reliability with minimal environmental benefit.
In contrast, the QER addresses real energy infrastructure problems where some real progress can be made. Last month we discussed how the QER says the U.S. needs to modernize its aging oil, natural gas and electricity networks. The QER also says the U.S. needs to unsnarl several energy infrastructure “traffic jams,” the first of which relates to the shipping relationship among oil, coal and agricultural products.
The biggest surprise of my career has been the great reversal in the U.S. oil and gas industry. When I started work in 1979 at a Minnesota electric cooperative, the Arab oil embargo was recent history and a federal law forbade the use of oil and natural gas in any new generating plants. In the early 2000s, the U.S. was planning to build several liquefied natural gas terminals to import natural gas from the Middle East. Because of the development of hydraulic fracking technology, the U.S. is moving rapidly toward oil and natural gas supply independence and is now even discussing exporting oil and liquefied natural gas.
Problems come with gas and oil independence
The problem is these new natural gas supplies from eastern Ohio, western Pennsylvania and New York, and these new oil supplies from the Bakken field in western North Dakota and the south-central Canada tar sands are not conveniently located to existing gas and oil pipelines. Our members are probably aware of the proposed gas pipeline routes under discussion through our cooperative’s service area but may be unaware of the railroad “traffic jam” that has developed due to inadequate pipeline infrastructure to serve these new oil and gas fields.
Figure 1 shows the number of railcars of crude oil by quarter from 2009 to 2014. In 2009, there was about 10,800 carloads of crude oil shipped, while by 2014, shipments had grown to 493,000 carloads of crude oil, or a 4,400 percent increase in five years. This has created increased competition along with delays for the rail shipment of all kinds of commodities in the upper Midwest, such as agricultural crops, fertilizers and chemicals. It also increased competition for the shipment of coal from the Powder River Basin (PRB) coal mines located in southeast Montana and northeast Wyoming. Figure 2 shows the U.S. power plants dependent on PRB coal. Note especially the plants along the east Ohio border. Near-record harvests in 2013 and 2014 for corn, soybeans and wheat in Minnesota, Montana, North Dakota and South Dakota also taxed the capacity of the rail systems with many shippers unable to pay the higher freight charges, putting grain into storage or paying for higher cost transportation. One should note an additional 40 railcars of drilling material is needed for each new natural gas well.
The competition for rail capacity also has caused problems for some coalfired generators. The 2013 grain harvest was followed by a severe winter (remember the January 2014 polar vortex?), which caused rail service interruptions. This meant that coal plants had trouble getting timely delivery of coal shipments, forcing them to dig deeper than normal into their stockpiles. This can be seen in Figure 3, where coal plants with less than 30 days of coal supply rose to 23 percent in 2014, up from 13 percent in 2013.
Another issue is that most of the crude oil shipped by rail is sent to East and West Coast oil refineries, although some is shipped to Gulf Coast refineries. Note in Figure 4 that an average of more than 25 trains a week of Bakken crude oil passes through northern Ohio, and one to 10 trains a week pass south through the center of Ohio. This has raised safety concerns along these routes.
Railroads playing catch-up
The railroads are working overtime to keep up with increased demand. For example, in 2014, BNSF Railway Company spent $5.5 billion in capital investments, of which $1.03 billion was for capacity expansion. It added 612 locomotives, 7,500 railcars and 7,000 employees because during 2013, it actually ran out of locomotives and crew. This investment is paying off.
Railcars at terminals dropped from 35 hours during the 2013/2014 winter to less than 24 hours during 2014/2015 winter.
Folks, energy growth can cause problems, but it also creates new opportunities, including lower energy prices and thousands of new jobs. The DOE QER is a good start at identifying U.S. infrastructure problems. The best solution would be for Congress and the administration to work together on policies that assist energy companies in solving these problems noted in the QER and by not putting up new roadblocks, such as EPA’s greenhouse gas regulations. Let’s keep our country moving forward.