July 24 (Bloomberg) -- Albany, New York’s capital city, may join the ranks of U.S. energy hubs such as Houston and Cushing, Oklahoma, as oil-terminal operator Global Partners LP pushes an expansion plan after already quadrupling its capacity.
For the last two years, more oil from the Bakken shale formation has rolled 1,800 miles (2,900 kilometers) by rail across North Dakota and around the Great Lakes to Albany. There, companies including Global Partners and Buckeye Partners LP load barges bound for New Jersey and New Brunswick refineries.
Albany’s importance as a link in the energy-production chain is poised to grow under Global Partners’ effort to win state permission to handle oil-sands crude and biofuels for shipping over objections of neighbors and environmental groups.
The convergence of Bakken crude cargoes in upstate New York adds Albany to the roster of North American cities grappling with a surge in rail-borne oil. The public debate in Albany echoes concerns raised elsewhere that the trains pose a risk of spills and fiery derailments like the one in Quebec last year.
“One morning we woke up and all of a sudden there were all of these trains lined up in people’s back yards,” said Vivian Kornegay, an Albany city council member representing the community adjacent to Global Partners’ plant. “When you walk out your back door they are right there. The only thing separating the trains from the houses is a chain link fence.”
Albany is served by CSX Corp., the biggest railroad in the eastern U.S., and Canadian Pacific Railway Co., which has benefited from Bakken crude because its lines reach into some of the fields and connect to U.S. and Canadian oil customers. The carriers say they operate safely.
While U.S. law restricts the ability of states and cities to regulate railroads, some local governments have sought to curb operations elsewhere in the energy-industry’s supply chain.
New York’s top court ruled last month that communities could ban hydraulic fracturing, or fracking. South Portland, Maine, on July 21 barred the loading of oil-sands crude at its deep-water port. That crude, dubbed tar sands by environmental groups, contains byproducts besides oil, making it difficult to process and handle.
Albany County Executive Daniel McCoy proposed legislation yesterday requiring railroad operators to report local spills within 30 minutes or risk a $250,000 fine and as much as a year in jail. County officials weren’t notified in June after Global Partners alerted state and federal governments about a spill at the port, McCoy said in a statement.
Global Partners’ Albany expansion plan centers on the addition of heating facilities to handle the oil-sands crude, letting the Waltham, Massachusetts-based company transfer the more-viscous liquid to barges from rail cars.
“The permit does not impact the existing business,” Chief Operating Officer Mark Romaine said. “What it would allow us to do would be to handle a wider variety of products.”
Buckeye didn’t respond to messages left for comment about its Albany plans.
Buoyed by fracking, oil production from the Bakken shale formation has surged over the past five years, with monthly output from North Dakota fields rising fivefold, according to the U.S. Energy Information Administration. The knock-on effect is more crude sent by rail, because there aren’t enough pipelines in place to handle the production.
Federal regulators are responding, too. The Transportation Department unveiled a proposal yesterday to phase out older, puncture-prone tank cars and reduce oil-train speed limits.
The derailment and explosion of an oil train in Lac-Mégantic, Quebec, in July 2013, which killed 47 people and destroyed dozens of buildings, highlighted the dangers of moving Bakken crude by rail. That oil may be more flammable and dangerous to haul than other types, the U.S. Pipeline and Hazardous Materials Safety Administration reported in January.
Albany’s oil boom began before the Canadian disaster. It started taking shape in 2012 when existing terminals in the city of about 98,000 were approved to handle more oil.
“It’s located in a decent area for transport, there were terminals there and the capacity existed,” said Trisha Curtis, a director at the Washington-based Energy Policy Research Foundation, a non-profit research organization. “It’s a natural location geographically and it’s close enough for the refineries so you can barge it down to New Jersey.”
Buckeye, based in Houston, received state officials’ approval in 2013 to almost double annual capacity in Albany to 1 billion gallons of crude, and Global Partners was cleared to expand to 1.8 billion gallons a year, up from 450 million.
Since then, Bakken crude has been packed into more trains, some more than 100 cars long. Rail traffic jams mean locomotives idle yards from houses and along Interstate 787, waiting to get into the port’s rail yards, McCoy said in a telephone interview.
“This is a renaissance of commercial activity for the ports and rail yards and it’s a great thing for the economy but it means more activity that requires more vigilance,” said Karen Moreau, executive director of the New York State Petroleum Council trade group in Albany. “If you’re increasing traffic you’re also increasing the likelihood there could be a spill.”
The jobless rate in Albany’s metro area was 5.1 percent in May, the most-recent figures available, lower than the 5.9 percent average for the 52-county upstate region, according to the New York State Department of Labor.
“Certainly the expansion of activity at the port of Albany has resulted in increased employment,” said Mike Tucker, chief executive officer of the Albany Center for Economic Growth, who didn’t have an estimate for the port’s specific contribution.
The community beside Albany’s port is awaiting a comprehensive, county-led environmental review of Global Partners’s site for the heating operations.
While Global Partners says it has the equipment to handle accidents, local residents remain concerned about the risk from derailments and spills, said McCoy, the county executive.
“Are we in a position to fight a big lawsuit? No,” he said by phone interview last week. “But I want to be proactive. God forbid if something happens here like it did in Lac-Mégantic, Canada. We know we have worked to do everything we can to protect our people’s health and the environment.”
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