Can we keep crude from blowing up (literally)?

image credit: Lnk.Si

RBOB Drop

Relief at the pump is on the way!  

Despite tensions around the globe, the addition of Libyan oil and a less than spectacular 4th of July driving weekend is keeping a lid on gasoline (NYMEX:RBN14) prices. We saw a big break in the Chicago cash market and that perhaps bodes well as a sign for the rest of the country. With a break in Brent crude (NYMEX:SCN14) hitting its lowest level since the Iraq crisis began and passing the summertime demand peak gas prices have topped assuming that we don't see a major disruption.

Of course the promise of more Libyan oil exports added to the move as well as the fact that oil exports from the south of Iraq continue. 

But can we keep the crude from blowing up, literally? We have spoken many times about the quality and make-up of the shale oil and today the Wall Street Journal reports on the issue. The Journal reports that "When energy companies started extracting oil from shale formations in South Texas a few years ago, they invested hundreds of millions of dollars to make the volatile crude safer to handle. In North Dakota's Bakken Shale oil field, nobody installed the necessary equipment. The result is that the second-fastest growing source of crude (NYMEX:CLN14) in the U.S. is producing oil that pipelines often would reject as too dangerous to transport. Now the decision not to build the equipment is coming back to haunt the oil industry as the federal government seeks to prevent fiery accidents of trains laden with North Dakota oil. Investigators probing crude-by-rail accidents, including one a year ago that killed 47 people in Quebec, are trying to determine why shale oil has proved so combustible—a question that has taken on growing urgency as rail shipments rise.

Only one stabilizer, which can remove the most volatile gases before transport, has been built in North Dakota and it hasn't begun operation, according to a review by The Wall Street Journal. Stabilizers use heat and pressure to force light hydrocarbon molecules—including ethane, butane and propane—to form into vapor and boil out of the liquid crude. The operation can lower the vapor pressure of crude oil, making it less volatile and therefore safer to transport by pipeline or rail tank car.

As the Journal previously reported, oil tapped from shale is generally more volatile and more similar to jet fuel than traditional crude oil, which has seldom been linked to explosive accidents. The production of this volatile oil through hydraulic fracturing has soared, accounting for most of the additional 3 million barrels a day of oil that the U.S. produces today compared with 2009. The federal government is weighing whether to require stabilization, holding high-level meetings with oil executives. "We are open to any recommendations with a demonstrated ability to improve safety, including the stabilizing or further processing Bakken crude," says Sarah Feinberg, the chief of staff to Transportation Secretary Anthony Foxx. If the government mandates the use of stabilizers, companies would have to make big investments in equipment and might have to slow development of the Bakken oil field. A Must Read!

Natural gas (NYMEX:NGN14) got hit hard as tropical storm activity could cool temperatures. Still despite the big break the market is oversold and any return to sustained heat could give the market a rebound. Gold (COMEX:GCN14) prices continue to hang in there as the World Gold Council looks to fix the London Gold Fix. Reuters reports that "Gold producers and consumers are resistant to a wholesale redesign of the existing price setting benchmark known as the "fix" despite increasing regulatory glare, a discussion held by the World Gold Council found on Monday. The debate hosted by the gold mining industry group was attended by 34 delegates from investment funds, refiners, exchanges, and other industry bodies. The four banks that currently set the globally used gold benchmark twice a day via a conference call--Barclays Plc, HSBC, Bank of Nova Scotia and Societe Generale - were not present, but the WGC said it had had meetings with them separately.

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