By Kevin Rector, The Baltimore Sun
6:32 PM EDT, June 12, 2014
A Houston-based company asked Maryland for a permit to ship millions of gallons of crude oil through its South Baltimore marine terminal as the nation's oil industry surges.
Another company in the Fairfield industrial area began moving crude oil in recent years from tank cars hauled by locomotives onto barges for shipment to refineries or asphalt plants.
While the boom in U.S. crude oil production is helping to reduce the nation's dependence on imports, the rapidly expanding domestic transport of crude by rail and barge is raising concerns after several derailments and explosions and a barge accident that spilled crude into the Mississippi River.
Worried by the threat to the Chesapeake Bay, environmental groups are calling on government regulators to carefully review existing operations and any new proposals as the industry turns to barges to supplement rail and pipeline capacity.
"The Chesapeake is extremely shallow, enclosed, with thousands of miles of very sensitive and productive shoreline," wrote Chesapeake Bay Foundation President William Baker in a letter to the Coast Guard, urging the establishment of a work group to study the transport of oil on the bay. "Oil released in the Chesapeake is guaranteed to affect the most vulnerable elements of the estuary — bottom sediment, underwater grasses, fringe wetlands, and certainly juvenile species of crabs, oysters and fin fish."
Already, Axeon Specialty Products, a San Antonio-based asphalt refining company, brings crude to the Patapsco River terminal of NuStar Energy, another San Antonio firm, where it is loaded on barges adjacent to the Harbor Tunnel Thruway on Interstate 895.
Houston-based Targa Resources has requested an air emissions permit to start another barge operation and permission to add storage capacity for at least 12.6 million gallons of crude to start a similar rail-to-barge operation at its Fairfield terminal.
"Fairfield is going through a transformation right now," said Mark Wagner, the Fire Department's assistant chief of operations and Baltimore's former hazardous-materials coordinator.
The city has conducted drills for regional emergency personnel responding to petroleum disasters, including a mock barge fire at NuStar Energy, Wagner said. The Fire Department is acquiring a $600,000 foam pumper used in smothering petroleum fires, he said.
The transport of crude oil and other petroleum products in the state is highly regulated by agencies that include the Maryland Department of the Environment, the U.S. Coast Guard and the Federal Railroad Administration.
The MDE maintains an oil spill cleanup fund with transfer fees on the shipment of oil through the state. The Oil Control Program collected $5.7 million in fiscal year 2013, said Jay Apperson, a department spokesman. The bulk of that came from NuStar Marketing LLC — a name Axeon previously used under a former partnership with NuStar Energy — for transferring nearly 53.5 million gallons of crude through the state by rail that year.
Through the third quarter of fiscal year 2014, which ends June 30, the company has moved nearly 40.5 million gallons through the state by rail. Apperson said the state program did not license any movements by the company in 2011 or 2012.
Concerned about the dangers, federal regulators are moving to better regulate the growing shipments of crude oil through populated areas, especially the highly volatile crude coming out of the booming Bakken fields in North Dakota.
The growth in Canadian oil sands production and shale oil production in the Bakken fields and in Texas are "fundamentally changing the U.S. oil supply-demand balance," according to a May report by the Congressional Research Service. It found that North American crude production now meets 66 percent of U.S. demand.
Accidents involving Bakken crude, which is nearly as volatile as gasoline, have caused several violent explosions along rail lines in recent months, including in Lynchburg, Va., in April. A Canadian crude oil train derailed and exploded last July in a small Quebec town near the Maine border, killing 47 people.
In February, the railroad industry agreed with U.S. and Canadian regulators to reduce speeds on trains carrying crude, inspect tracks more frequently and improve braking. The U.S. Department of Transportation launched efforts to tighten restrictions on trains hauling crude for long distances, which are becoming more common.
"According to rail industry officials, U.S. freight railroads are estimated to have carried 434,000 carloads of crude oil in 2013 (roughly equivalent to 300 million barrels), compared to 9,500 carloads in 2008," the congressional report found. "In 2014, 650,000 carloads of crude oil are expected to be carried."
Rob Doolittle, a spokesman for CSX Transportation, the region's dominant railroad, said the company handles deliveries to refineries and has seen an increase in the amount of crude it is transporting from the Midwest to the East Coast.
However, he said the "volume of oil handled and customers served, like other shipments, is commercially sensitive information." He declined to say whether the company moves crude through Maryland, though its lines lead to where the oil terminals are in Fairfield.
Analysts said Baltimore's Fairfield area could serve a growing role as a transfer point for crude as domestic production continues.
In Targa's application with the state, it described plans to install equipment that controls the air emissions of crude as it is being transferred onto barges. The company said it is planning to handle different types of crude oil, including highly pressurized types like Bakken crude, though it did not mention Bakken by name.
Targa CEO Joe Bob Perkins said in an email that the company did not have "any public comment to add to the application." The company purchased the Fairfield terminal, previously owned by Chevron, in 2011.
Claire Riggs, an Axeon spokeswoman, said her company is transporting heavy Canadian crude oil in Maryland — not Bakken crude — but would not disclose details.
"We are committed to safe and environmentally sound operations and we work closely with our business partners to ensure the highest standards are employed in transporting crude throughout our system," Riggs said in an email.
Mike Truby, senior vice president of operations for NuStar Energy, said his company accepted about 240,000 barrels — or more than 11.5 million gallons — from Axeon in fiscal 2013. To date in fiscal 2014, the company has accepted about 160,000 barrels, or about 7.7 million gallons, he said.
The amount of crude the company receives for barge transport depends on demand, Truby said, but crude has been a growth area for the Baltimore terminal in recent years.
Across the country, crude oil transport by barge is rapidly expanding, with companies taking advantage of water access to refineries that had long been used to process imported oil, the amount of which fell as the domestic supply rose.
According to the U.S. Energy Information Administration, U.S. transport of domestic crude by barge increased from about 42 million barrels in 2007 to more than 151 million barrels in 2012. Along the East Coast, it went from about 3 million barrels in 2007 to more than 11 million barrels in 2012.
Kevin Sterling, a research analyst with BB&T Capital Markets who wrote an analysis of the crude-by-barge industry last summer, said Targa's push in Baltimore is likely a long-term investment in the barge market.
"That's probably where Baltimore fits in," Sterling said. "They'll probably take that oil to refineries in Philadelphia and the New Jersey areas."
Sterling said market growth is likely to continue as the industry develops broader partnerships with railroads and pipeline operators.
"Just a few years ago, crude-by-barge was essentially nonexistent," Sterling wrote in his report, "and today it has become one of the largest commodities moved by the barge industry."
Lt. Cmdr. Edgardo Cruz, chief of the Coast Guard's inspections division in Baltimore, said every barge that carries crude or refined petroleum products must be inspected regularly. A 1990 law also requires that barges carrying petroleum products be double hulled by 2015 to prevent spillage after accidents.
Still, environmental groups are concerned.
"There needs to be a lot more discussion and coordination between the agencies to find out what risk there is in the bay," said Alison Prost, the Chesapeake Bay Foundation's executive director in Maryland.
Doug Myers, the foundation's senior Maryland scientist, said the threat of spills is "usually highest in and around the actual facilities, both in the transfers from the trains to the barges or from the tanks to the barges, as well as crossing any existing navigation channels."
Leah Kelly, an attorney with the Environmental Integrity Project, said her organization is closely watching Targa's application and how the state handles it, and will review how the company intends to monitor its emissions.
Apperson of the MDE said Targa's application for an air-quality permit remains under review, and the company will need to submit more paperwork before its operation can be fully assessed. Members of the public will be able to request a public hearing on the plans before they are approved, he said.
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