An environmental review isn't the only challenge Shell faces with its Anacortes refinery. Betting on the long-term viability of Bakken oil is risky.
A plan by Shell to add a spur line and rail yard to accommodate 102-car oil trains at its Anacortes refinery is facing new headwinds: the possibility of needing to meet a full review under the state Environmental Policy Act. The concern is understandable because increased transit of oil by train is being driven by the Bakken shale play in North Dakota, whose crude is unusually volatile and has been involved in several fiery derailments.
But this isn’t the only problem for Shell plans. Behind the rapid drop in oil prices since last summer is the determination by Saudi Arabia to drive Bakken and other producers out of business. The Bakken fields depend on hydraulic fracturing technology (“fracking”) to get at so-called tight oil. It has substantially increased U.S. production and world oil stocks, but fracked oil is also expensive. It is only economically viable at a certain price point.
Fracking was appealing when oil was more than $100 a barrel, where it stood after the recession through much of last summer. Huge sums were invested, much of it financed by debt including junk bonds. And it was needed: Unlike large conventional fields, fracked wells play out more quickly and constant drilling is needed to stay even.
The economics are very different with oil around $50 a barrel. Layoffs have spread across the Oil Patch and the viability of fracking — and its heavy overlay of debt — is in question. Nobody knows exactly where most fracking becomes uneconomical. We’re finding out.
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To be sure, the Saudis aren’t the only factor at work. World demand has shriveled with Europe and much of Asia in a slowdown. Demand could rise again and, with it, prices. But planning on a future of abundant Bakken oil trains — even if safer tank cars are slow in coming, even if we’re happy to burn the planet with greenhouse gas emissions — is risky.
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