2015: Oil Industry Off to a Rough Start

In the last two weeks, the industry has faced oil train accidents, a refinery explosion, a science scandal, Obama’s veto of the Keystone XL and more.

On Feb. 16, 2015, a train with 109 oil-laden cars derailed and exploded in a ball of fire in Mount Carbon, West Virginia. The accident was just the beginning in a string of bad news for the industry in recent weeks. Credit: U.S. Coast Guard

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So far, 2015 has not been good to the oil industry. In just the last two weeks, the bad news included two fiery oil railcar accidents, a refinery explosion, a scandal involving an industry-funded climate skeptic, a high-profile setback for an oil-by-rail project, a big retrenchment in Canada’s oil sands, and the president’s veto of the Keystone XL oil import pipeline.

And that’s not all. Those events have come on top of industry-wide ripple effects from the recent plunge in crude prices. In the last two months, a string of oil companies announced disappointing earnings, workforce layoffs and sharp spending cuts. On Feb. 1, union leaders began strikes at many U.S. refineries after contract talks stalled.

“It’s a mess…it’s like a perfect storm,” said Fadel Gheit, senior oil analyst at Oppenheimer & Co. He expects even worse earnings and layoff news ahead if oil prices stay in its current range of around $50 per barrel. On Jan. 28, the price of U.S. benchmark crude closed at a low of $45.23 a barrel, down more than 43 percent since the end of October.

Anthony Swift, a staff attorney at the Natural Resources Defense Council, agreed with Gheit. “It’s been a rough start to the year and an interesting confluence of events,” he said.

Tupper Hull, spokesman for the Western States Petroleum Association trade group, acknowledged that the industry has lately been affected by “a series of events and circumstances across a broad spectrum.”

But Hull said the oil industry has a long history of dealing with obstacles and oil-price cycles. “I don’t think there’s anything to suggest that this will deter the energy industry from its mission to make sure that fuels and energy are produced and provided to businesses and consumers safely and efficiently,” he said.

Swift at the NRDC thinks much of the bad news stems from the industry’s own choices. “The industry’s focus on rampant expansion at the cost of every other consideration is at the root of the troubles it’s facing,” he said.

He pointed out that the industry years ago thwarted regulations that would have led to less-puncture prone railcars for carrying oil. The industry is now resisting several aspects of new safety improvements being proposed by government regulators.

In addition, oil industry decisions to spend years fighting carbon emissions limits, air and water quality safeguards and tougher pipeline rules have helped undermine the public’s trust. Accidents and environmental ill-effects from industry operations have stoked opposition to new oil infrastructure and to the Keystone XL pipeline, in particular.

The Keystone XL, which would carry Alberta oil sands from the U.S.-Canadian border to the Gulf Coast, is being fought by environmentalists because tar sands extraction emits more carbon into the atmosphere than conventional oil production, and because a spill from the pipeline could contaminate any of the rivers, reservoirs and aquifers along the Keystone’s route.  

In the industry’s most recent setback, this week President Obama vetoed a bill that would authorize construction of the final segment of TransCanada’s Keystone XL—from the Canadian border through Nebraska. Obama rejected the bill because it would have circumvented the administration’s ongoing review of the project.

The administration has yet to say whether it will grant or refuse the permit the Keystone XL needs to proceed, but Obama has said the decision will be made largely based on the project’s impact on climate change.

In addition to the Keystone XL veto, the oil industry’s bad news in February includes:

Revelations that a high-profile climate skeptic didn’t properly disclose his fossil fuel funding.

Emails and documents released on Feb. 21 highlighted a close relationship between scientist Willie Soon and energy companies that helped fund his work. Soon, who is affiliated with the Harvard-Smithsonian Center for Astrophysics, did not fully disclose his funding sources to journals that published his research. Soon is being investigated for possible ethical violations involving potential conflicts of interest. The controversy has drawn new attention to the energy industry’s efforts to cast doubt on the science linking fossil fuel emissions to global warming.

Shell’s decision to shelve plans for a major oil sands project. 

Citing low oil prices, on Feb. 23 Shell said it has withdrawn its application for the proposed Pierre River Mine in Alberta’s tar sands region. The project was to produce 200,000 barrels per day of heavy oil, making it one of the largest projects to be postponed following the recent plunge in oil prices.

Two oil-train derailments that led to explosive fires.

On Feb. 14, a 100-car Canadian National Railway Co. train carrying oil derailed near Timmins, Ont., and caught fire. The accident was in a remote part of Northern Ontario and no one was hurt. A few days later, a train with 109 oil-laden cars derailed and exploded in a ball of fire in Mount Carbon, W.Va. The accident forced the evacuation of hundreds of families, threatened to contaminate drinking water supplies, and caused one person to be treated for inhalation. 

A regulatory reversal requiring a proposed Shell rail terminal to undergo an extensive environmental review.

Citing the risk of oil spills, fires and explosions, a county examiner on Feb. 23 ruled that Shell’s plan for an oil-train terminal at its Anacortes, Wash. refinery must get a full environmental review. The move reflects growing concerns about the safety of the long oil trains that are carrying North Dakota oil to refineries on the U.S. east and west coasts. The Skagit County examiner noted that similar, already completed projects were not subject to the full environmental review, but that subsequent oil-train accidents make further risk analysis necessary. 

A massive explosion at ExxonMobil’s Los Angeles-area refinery.

On Feb. 18, an explosion rocked ExxonMobil’s refinery in Torrance, injuring four workers and triggering a precautionary community lockdown. The accident badly damaged the plant and sent ash raining down on nearby homes. Gasoline prices in California have jumped substantially as a result—and refineries are earning higher profits on every gallon of gas. 

An ongoing strike by union employees at refineries across the country.

With contract talks at a standstill, members of the United Steelworkers union on Feb. 1 began the largest refinery strike in 35 years. The strike now includes more than 6,500 workers at 12 refineries and three other plants. Many plants are operating with managers and replacement workers filling the gaps. The companies and the union are hashing out a new three-year contract covering 30,000 workers.

Refining companies are not suffering at the moment, though. Because of favorable oil price differentials,

“Refining companies have been printing money,” according to Gheit, the Oppenheimer oil analyst. “They’re the only bright spot in the industry.”

As for the rest of the industry, Gheit predicts it will go “from one extreme to the other.”

“Everything’s bad—nothing positive has happened in the oil patch since June of last year,” said Gheit. But, he added, “the industry will survive.”