As oil prices recover and U.S. shale production picks up, energy companies that had planned to ship crude on the Dakota Access Pipeline (DAPL) will turn to rail, a transport method that poses its own risks to the environment and local communities.
The Dec. 4 decision by the Army Corps of Engineers to deny Energy Transfer Partners an easement to complete the line means shippers who expected to see another 570,000 barrels of daily Bakken pipeline capacity in 2017 will have to find new ways to move supply.
Rail comprises nearly 65% of total crude export capacity in the Bakken Shale, but is currently underutilized because it is more costly and less efficient. In September, only 29% of total Bakken oil production moved by rail, according to the latest figures from the North Dakota Pipeline Authority.
"Once the pipes are full, that means more trains. And without DAPL, the pipes get full sooner than they otherwise would have," said Rick Smead, managing director of advisory services for RBN Energy, noting that this scenario is contingent on a big rise in production.
A rise in incidents during the shale boom, and high-profile accidents such as the explosion in 2013 that killed 47 people in Lac-Megantic, Quebec, have drawn increased scrutiny to the rail industry, prompting the U.S. government to enact more stringent regulations for rail movements.
Overall, oil spills more frequently with pipelines than rail cars, according to data from the Pipeline and Hazardous Materials Administration (PHMSA). For example, in 2015, there were 252 pipeline spills reported to PHMSA involving crude oil, vs. 123 for the rail industry. In 2014, the frequency of spills at pipes was about 23% greater than rail, the data shows.
The 1,172-mile, or 1,885 kilometer (km), DAPL is slated to run from western North Dakota to Illinois, and has been the subject of protests for months from Native Americans and environmental activists concerned about leaks, contamination of water supply, and disruption of sacred sites.
Incidents involving crude-by-rail peaked in 2014, at nearly 190, vs. just one accident in 2006, the data shows.
The rise in accidents followed a surge in volumes moving by rail each day, which hit a high of 29.2 million barrels (MMbbl) per month in October 2014. As of September 2016, that had declined to about 10.5 MMbbl monthly, according to data from the EIA, as new pipelines displaced rail and production has declined.
With lower volumes, train accidents involving crude are down significantly, with only nine reported this year, according to PHMSA data.
But that could change.
"There are increased chances of accidents, leaks and greenhouse gas incidents when transporting by rail," said Afolabi Ogunnaike, a senior analyst at consultancy Wood Mackenzie.
Bakken oil production is expected at 918 Mbbl/d in December--about 70 Mbbl/d above current pipeline capacity, according to the U.S. Energy Information Administration. A recent deal by OPEC to cut production and stabilize prices could boost drilling activity.
"The Bakken is a tremendous resource. It's going to grow significantly ... There is a need for additional pipeline capacity in years to come," said Ogunnaike.
In North Dakota, there have been no accidents involving crude rail cars in 2016, vs. six in 2015 and five in 2014, according to PHMSA data.
Four spills since 2012 have occurred in Mandan, N.D., a city about 40 miles (64 km) north of the proposed route of the DAPL that has been the site of protests.
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