Oil Rush: Can Safety Standards Keep Pace with America's Fossil Fuel Boom? [UPDATED July 21]

Earlier this month, citizens in Albany’s South End held a vigil to mark the anniversary of a disaster that had upended a small lakeside community in Quebec, Canada, the previous year. It was on a warm July night in 2013 that an unattended runaway train loaded with some two million gallons of crude oil careened downhill into the center of the town of Lac-Mégantic and derailed, igniting an explosive conflagration that killed 47 people and leveled nearly 40 buildings. In Albany the observance took place at the Ezra Prentice Homes, a public housing complex located by the tracks along which trains bound from North Dakota’s Bakken region regularly rumble, carrying the same volatile form of crude that upended Lac-Mégantic.

More crude oil was spilled in U.S. rail accidents in 2013—1.15 million gallons—than in the nearly four decades combined since the federal government began collecting data in this area. And with there having been at least six fiery accidents in North America since last July, and no fewer than five derailments involving oil-laden trains in New York State since last December—all of which were, thankfully, unaccompanied by explosions or spills— residents, emergency responders, environmentalists and public officials are worried that a similar catastrophe to the one in Lac-Mégantic could befall New York.

“If that happened in the city of Albany, you could see even more lives lost,” said Rep. Paul Tonko, who represents a large swath of the Capital Region. “The number of communities impacted in just the 20th Congressional District and beyond—upstate New York, other states—there’s a trail here that traverses many, many communities.”

North America is in the midst of an oil boom of such an immense magnitude that the United States recently overtook Russia and Saudi Arabia to become the world’s leading oil producer, according to July figures released by Bank of America. Technologies like hydraulic fracturing and horizontal drilling have fueled unprecedented extraction rates in previously uneconomical oil formations. The Association of American Railroads tabulated that more crude was delivered on the U.S. rail network during the first quarter of 2014 than in any other quarter in history—110,164 carloads. By contrast, in 2008 there were just 9,500 carloads transported over the entire year. By 2013 the number had rocketed to 407,642, according to a study commissioned by Gov. Andrew Cuomo’s office, an increase of over 4,000 percent in just five years.

New York’s geographical position has made it a nexus for the transport of crude by rail: As much as a quarter of the output from North Dakota— which surpassed California in 2012 to become the nation’s second largest oil producing state after Texas—comes through the Port of Albany via Buffalo and Canada, where it is then hauled down the Hudson River in ships and barges to refineries in places like New Jersey and Pennsylvania. At the port, two energy companies—Buckeye Partners of Texas and Global Partners of Massachusetts—operate terminals authorized to handle a total of 2.8 billion gallons of oil per year.

In April, 30,034 barrels (over 1.2 million gallons) of crude were pulled from the state’s Bakken region, up from 23,816 barrels during the same period last year and 8,556 in April 2010.

A report from Oil Change International, a clean-energy advocacy group, found existing loading terminals can currently handle three-and-ahalf times the capacity being shipped around the country. The transportation infrastructure, however, has not been upgraded or expanded fast enough to adequately handle the burgeoning supply, and safety regulations—which are made at the federal level—have yet to catch up with the needs of an industry that sometimes appears to be biting off more than it can chew.

It is the inadequacy of pipelines running to the East Coast and elsewhere that has impelled the industry to turn to the rails. According to the blog Roll Call, Global Partners’ CEO Eric Slifka, speaking at a recent U.S. Energy Department conference, said the nation’s pipeline system is not extensive enough, nor does it have the flexibility to handle today’s rapidly changing energy markets. Railroads, he said, “will provide the foundation necessary to access a multitude of markets, from a multitude of locations, with a multitude of products … all the while requiring low levels of capital.” In comparison, Slifka noted, new oil pipelines require “massive” amounts of capital and cannot bend to meet shifting patterns of supply and demand.

The controversial proposed Keystone XL pipeline will not directly affect the Northeast. If and when it is built, it would run from Hardisty, Alberta, to Steele City, Neb., and connect with existing pipelines running from Texas and Illinois.

One drawback of rail transport, however, is that many of the tank cars used to ship the crude are decades-old DOT 111s—the same cars involved in the Lac-Mégantic disaster—which have a tendency to rupture in accidents. The Canadian government recently mandated the use of newer model cars with thicker shells within three years, but the U.S. National Transportation Safety Board has yet to issue a similar order, even though the U.S. Department of Transporation has repeatedly warned of the older cars’ high failure rates in accidents.

To compound the problem, the crude coming out of the Bakken is more explosive than most, because the oil is not stabilized at the drilling site. (Some reports say this oil’s volatility also prohibits it from transport by pipeline.) In South Texas, energy companies have already invested hundreds of millions of dollars in stabilization facilities that eviscerate the lighter, volatile hydrocarbon compounds from the oil prior to shipping. In the Bakken, only one such facility is under construction and has yet to be put to use.

In a July 1 letter to U.S. Transportation Secretary Anthony Foxx, four congressional representatives from California called for the agency to require oil companies to remove the volatile elements from the crude before it is loaded for transport to refineries: “Stabilizers are common in other parts of the country,” they wrote. “Because your agency has explicitly stated all options are on the table, we believe that requiring the petroleum industry to make lighter crude shipments by rail less volatile must be a part of the solution.”

Transport by rail also gives rise to a question of trade secrecy versus the public’s right to know: In early May the U.S. Department of Transportation issued an emergency order requiring railroads to inform state emergency management officials of the routes and number of crude oil shipments of one million gallons or more passing through each county. Railroads like CSX Transportation and the Canadian Pacific Railway Company have been wary of the information going public— perhaps not surprisingly, given the industry’s long-held concern about both protestors and terrorist threats. These and other rails companies have been asking states to sign nondisclosure agreements before they reveal their routes.

In Pennsylvania, officials have agreed to keep the information private. But New York recently joined at least six other states—Washington, North Dakota, California, Montana, Florida and Virginia—in agreeing to make the information public. According to documents released by the state in mid-July, as many as 44 trains, each carrying at least one million gallons of Bakken crude, move through upstate New York each week. Rails operated and owned by CSX, along which 20 to 35 trainloads move weekly through the state, enter New York in Chautauqua County, head north through Erie County and then continue east to Albany. Canadian Pacific, which accounts for five to nine oil trains per week, comes down from Canada through Clinton County and keeps going all the way to the state capital.

The cost of the disaster at Lac-Mégantic is now estimated to be around $2 billion (U.S.), with the cleanup alone projected to come out to around $200 million. However, the railroad company responsible for the crash—Montreal, Maine and Atlantic Railway—was only carrying $25 million in liability insurance at the time. The company filed for bankruptcy in August of 2013, and soon thereafter the Canadian Transportation Agency, citing MM&A’s inadequate coverage to pay for the cleanup, suspended the company’s Certificate of Fitness and shut down the line. Although the Canadian government ordered the American companies that were shipping the oil—Miami-based World Fuel Services and its subsidiary, Western Petroleum Company—to pay for the cleanup, those companies have so far refused to comply, arguing that they were not liable for the load at the time. So far, Canadian taxpayers are footing the bill.

While most major railways have greater liability insurance—as high as $1.5 billion—than the $25 million MM&A possessed, there is not, as The Wall Street Journal has reported, an insurance plan on the commercial market large enough to cover the worst-case-scenario: a massive explosion in a dense urban area. At the same time, in spite of the recent uptick in derailments, 99.9 percent of the 150 million tons of hazardous materials hauled each year by railroad reaches its destination safely.

New York State’s oil spill fund currently totals just over $20 million, according to the state comptroller’s office. State Assemblyman Phil Steck of Colonie has called for increasing the fund to $2 billion, and plans on introducing a bill to do so in time for the next legislative session.

“There is already a charge on the transport of oil in tanks, but it was developed many, many years ago, and the current charge is woefully inadequate to pay the cost of the cleanup if there were an accident,” Steck said. “And we feel that with the Bakken crude, the likelihood of an accident is, unfortunately, much, much greater.”

Steck thinks the measure will garner enough support in the Assembly. And while the power dynamics in the Senate are in constant flux, especially with the upcoming election, Steck believes the upper chamber will be hard-pressed not to get on board with it as well.

“There are reasonable people on both sides of the aisle on this,” he said.

Remarkably, as Capital New York has reported, the two companies that ship the most oil through the state—Buckeye Partners and Global Partners—pay less into the fund than other energy companies in the state, because of a technicality. Since they are not selling the crude within New York, they pay about 12 times less than other companies that do. (Global does sell other fuels, such as ethanol, in New York, for which it pays the higher rate.) So while Global and Buckeye paid $3.6 million and $3.7 million, respectively, into the state’s oil fund in fiscal year 2013–14, they were only paying 1.5 cents per barrel of crude, while other companies that sold fuel in the state paid 4.5 cents a barrel. Additionally, these other companies pay an 8 cents per barrel licence fee to the government, which Global and Buckeye do not, according to the New York State Department of Environmental Conservation. (Global’s legal representative, Scott Solomon of the Massachusetts law firm Sharon Merrill, said in an email that Global pays 1.2 cents per barrel into the fund. A DEC representative claimed the figure was, to the best of his knowledge, 1.5 cents.) U.S. Securities and Exchange Commission filings show that in 2013 Global turned a profit of $405.8 million, while Buckeye projected profits of $478 million.

“This oil is just passing through New York,” said Kate Hudson, a program director at the environmental organization Riverkeeper, who previously worked for the DEC and the state Attorney General’s Office. “It is not being bought and sold in New York, it is not being refined in New York, and so New York is not really making any money off this crude oil transport. And yet it is being put at huge risk.”

Over the past six months, public anxiety in Albany County has centered on Global Partners. The company has been pushing a proposal to build seven industrial boilers at its terminal storage facilities at the Port of Albany, which would allow it to handle a different form of crude there: highly viscous Canadian tar sands oil. Oil extracted from tar sands—its scientific name is bitumen—is not currently shipped through Albany, in part because it will not pour at cooler temperatures, which makes it challenging to transfer this type of oil from a train car to a barge or truck.

Tar sands oil poses far less of a threat of explosion than the Bakken crude does, but it carries with it a risk of a different sort of catastrophe: While lighter crudes float atop fresh water, bitumen can sink, making it much harder to remove in the event of a spill. (Heavier oils float more readily in the ocean because saltwater is denser than fresh water.)

In written testimony before the Albany County Supreme Court, former senior Coast Guard officer James Elliott, who has led multiple oil spill response efforts across the United States over 25 years, noted that “the heavy crude oil Global Companies LLC would gain the capacity to receive, handle and transport at its Albany Terminal if its Permit Application is approved … can include the type of crude oil that could potentially sink or be suspended in the water column rather than float on the surface.” Elliot also stipulated that the downstream flow of rivers—complicated in this case by the Hudson’s tidal nature—and the fact that vegetation often merges with the water’s edge further frustrates cleanup efforts.

“Based on this discussion of the complexities of oil spills in riverine environments,” Elliot continued, “and given the current state of oil spill recovery technology at about a 10-to-25 percent recovery rate, it is likely that oil spill responders in the Hudson River could potentially achieve a lower than average spill recovery rate.”

According to Elliot, the Area Contingency Plan for New York and New Jersey, which includes oil spill response strategies, currently references “pre-2000 technologies and inventories.” In April the DEC announced a partnership with the U.S. Coast Guard and the Environmental Protection Agency to revise and update the plan. That has not stopped a national environmental group—the Center for Biological Diversity—from filing a federal lawsuit charging that increased oil shipments on the Hudson River threaten 17 endangered species and demanding that the agencies update their oil spill response plans.

“There’s a lot of hand waving going on right now about getting everybody ready to respond to the spill,” Hudson said. “But particularly in a river like the Hudson, there’s not going to be an effective response. A spill of any size is going to be an environmental disaster, and in a river where there has been decades of money and time spent on cleaning it up, to be putting it at risk again is just tragic.”

Peter Iwanowicz, executive director of Environmental Advocates of New York, sees the potential shipping of tar sands through Albany as facilitating climate change. “It’s a fuel that has been widely recognized as being the most carbon-intense form of crude oil, meaning the energy it takes to extract the fuel, and ship it, and et cetera, is 17 times worse for the climate than regular crude oil is, which is bad in and of itself,” Iwanowicz said. “If we open up our port, and we open up the Hudson River to this fuel, then we’re basically sitting there as a party to a dramatic increase in carbon pollution.”

Back in 2007 Global Partners bought a tank farm from ExxonMobil at the Port of Albany and began handling fuels like oil and ethanol there. When the company obtained a permit from the DEC to expand its capacity from 450 million gallons per year of combined fuels to 1.8 billion gallons of crude oil in November of 2012, there was little public opposition. However, the slew of accidents in Canada and around the United States in 2013 set off alarm among environmentalists, elected officials and Albany residents living near the port.

When Global proposed the construction of the seven boilers in the fall of last year, the DEC initially determined they would have no environmental impact. But in March Albany County Executive Dan McCoy used his authority at the local level to place a moratorium on the boilers’ construction, pending an investigation by the Albany County Health Department.

“I want to be proactive, not reactive,” said McCoy. “And I can’t see the benefit for Albany County. Yeah, the port would be increasing its business a bit and the City of Albany would get some more in taxes, but does that benefit offset the health and safety risks and the risks to the environment?”

McCoy has set up an independent panel to be chaired by Iwanowicz, who formerly served as acting DEC commissioner under Gov. Eliot Spitzer, to investigate the safety and environmental issues surrounding Global’s proposed expansion at the port.

Also in March, the DEC sent a letter to Global Partners with 29 questions about the company’s intentions and its ability to contain or address any risks posed to the environment. Additionally, the agency announced it was extending the public comment period on construction of the boilers until August 1, citing “broad public and community interest.”

In a May response to the DEC, the company stated that “with respect to crude oil for which Global has otherwise taken title to prior to transport, Global maintains insurance of various types with varying levels of coverage that it considers adequate under the circumstances to cover its operations and properties. The insurance policies are subject to deductibles that Global considers reasonable and not excessive.”

Asked to describe the “scope and extent of any liability insurance” the company maintains, Global reiterated its initial response, adding only that it “also must maintain the insurance/ financial assurance required by the State Navigation Law.”

According to the DEC, the state Navigation Law "mandates financial assurance for vessel owners, not owners or operators of land-based facilities." 

"Federal transportation agencies have exclusive authority over insurance for rail transport of hazardous substances," wrote DEC spokesman Peter Constantakes in an email to City & State. "DEC has no authority to compel operators of major oil storage facilities to provide insurance covering discharges during rail transport. ... Global has acknowledged having such coverage, but has not yet provided additional details regarding this insurance coverage. DEC is preparing a follow-up letter to Global and will request additional information.” 

A bill introduced last session by Assemblywoman Pat Fahy would require the operators of oil storage facilities at the Port of Albany and elsewhere around the state to carry financial insurance to offset the cost of a potential accident. When asked if insurance was required at the federal level, Fahy said, "Not that we know of." The Federal Railroad Administration did not respond to request for comment. 

"Any person who discharges petroleum in New York is strictly liable—regardless of fault—for all cleanup and removal costs, as well as direct and indirect damages," Constantakes said. "Determinations as to who is responsible for shipments "en route" would reflect the facts of the incident and may also be based on federal law."

Global did not respond to questions from City & State about the scope of its insurance coverage.

Richard Hendrick, the general manager of the Port of Albany, said the oil boom has spurred job creation at the port, and enabled the longshoremen and women who work the tugboats and barges to accrue more hours.

“The two terminals have more than tripled their employment force,” Hendrick said, noting that Global now has over 30 employees at the port, up from eight in 2007. “And they’re paying very good wages at both of these facilities. They’re not minimum wage jobs. They’re capable of putting food on the table for families.”

At Albany’s Ezra Prentice Homes—the public housing project located next to the tracks leading to the port—the predominantly minority residents have been depicted as the victims of environmental injustice. The argument goes that disenfranchised populations are rarely consulted about decisions that will ultimately affect their lives. Several environmental groups have joined the Ezra Prentice Homes Tenants Association in filing a lawsuit, alleging that DEC failed to fully consider the implications of the boilers’ construction before declaring they would not result in any adverse environmental impact.

The coalition of plaintiffs, which includes Riverkeeper, asserted in a press release that “a reversal of that decision is clearly required now, because of new information about the significant hazards of crude oil transport that has come to light in the last few months. In particular, an April 30, 2014, report to Gov. Cuomo concluded that the public safety and environmental risks from rail transport of crude oil are significant.”

The DEC issued a statement in response, saying it would “work with Riverkeeper and other parties to develop a joint motion asking the court to maintain the status quo without ruling on the merits of either party’s position until the public participation and comment period closes, DEC completes its review of public comments and additional information submitted by Global, and DEC announces its decision regarding the negative declaration, or until September 3, 2014, whichever occurs first.”

While New York has jurisdiction to regulate the terminals in the rail yards, the federal government oversees the railways themselves, and in late April Gov. Cuomo sent a letter to the White House urging immediate action to strengthen national regulation of crude oil transport. Cuomo’s entreaty included a report compiled by five state agencies, which found that while the “boom is helping to realign the global energy market” it has “also raised serious public safety and environmental concerns due to the inherent volatility of Bakken crude, the sheer volume being transported, and the poor safety record of the type of tank cars used to carry the majority of crude oil.”

Railway companies are legally required under the so-called “common carrier obligation” to haul any hazardous freight assigned by shippers like Global and Buckeye, so long as the product is legally allowed under federal regulations. (Truck and barge companies are not bound by this regulation.) And although companies like CSX and Canadian Pacific are just the purveyors of the product, they assume responsibility for the risks involved while the cargo is out on the rails away from port.

The state’s report outlines 10 recommendations for improving safety and environmental standards, the first being that the federal government should move immediately to upgrade the standards by which a tank car is deemed fit to carry oil in the first place. Nearly 82 percent of the cars now used to haul Bakken crude around the U.S. are older DOT 111’s, the model involved in the Lac-Mégantic disaster.

The Railway Supply Institute, an industry advocate, has been urging the federal government to support its recommendations for stronger oil car standards. The Association of American Railroads, which represents the nation’s major railway companies, is recommending an even thicker car.

Peter Goelz, the former managing director of the National Transportation Safety Board, says this is one of the rare situations where an industry is actually putting pressure on the federal government to upgrade safety standards.

“The industry—the railroads— has been trying for three years to get DOT and the Office of Management and Budget to agree on strengthened and improved tank cars,” Goelz said. “There’s misplaced pressure on the railroads, and it really is misplaced. They say, ‘Listen, we have to take it. We’re obligated to do that. And it’s the obligation of the shippers to tell us what we’re shipping.’ It’s one of these odd situations where the industry has been waiting on the Feds to act.”

Although the federal government has urged railways to use more modern, better-protected tank cars, it has yet to require that they do so.

“I’ve met twice with Secretary Anthony Foxx of the U.S. Department of Transportation, and he assures me they’re moving along in as expeditious a fashion as possible,” said Rep. Tonko, adding that Foxx did not provide him with a timeline.

Although a majority of the cars in an April 30 crash in Lynchburg, Va., were built in the last several years and to a higher standard, at least one of them still ruptured, and nearly 30,000 gallons of oil spilled in the James River.

State Sen. George Maziarz, who will soon step down as chair the Senate’s Energy and Telecommunications Committee, says the increased oil shipments are a net positive in the grand scheme of things.

“The discovery of Bakken crude and oil from Canadian tar sands is a good thing for our state and our country, since it increases the North American supply and will lead to lower prices and more energy independence,” Maziarz said. “Unfortunately, this issue is already falling victim to the usual demagoguery from opponents who seem to always believe that the risk of doing anything in the energy field outweighs the reward, particularly if it involves a fossil fuel. … Our goal should be to use more localized sources of fuel safely and keep consumer prices down, whether that fuel source is a fossil fuel or a renewable one. Activists take the opposite opinion, of course, but I think that this kind of opposition is another reason people do not want to do business in our state.”

According in his latest campaign filings, Maziarz received numerous donations from the energy sector.

At the aforementioned U.S. Energy Department conference Eric Slifka, Global Partners’ CEO, noted that despite the recent derailments and explosions, far less oil is spilled in train accidents than from burst pipelines. While train spills are measured in gallons, he said, pipeline spills are measured in barrels.

“This is big enough that all the parties involved are going to want to make sure that products, crude, [natural gas liquids], other liquids, can be moved safely throughout the system,” Slifka said. “There’s just way too many interested parties here for a deal not to come together.”

Dan McCoy, who was a firefighter for the City of Albany before he was elected county executive, and is also a current member of the New York National Guard, concedes that oil is a bare necessity that is not going away any time soon.

“We currently need oil to move this country forward, I get it,” McCoy said. “But there have to be better safety standards. This population living right by the train station in the South End—they can almost touch the trains in their backyard … And at the end of the day, protecting the people of Albany County is my job.”