This week, State Senator Jerry Hill (D-San Mateo) formally requested that Governor Jerry Brown impose a moratorium on oil trains after a Union Pacific freight train carrying grain derailed along the Feather River in Northern California last week. Yet with California the second largest consumer of energy and state production of crude oil cut in half, the Brown administration has no intention of banning trains bringing in cheap North Dakota crude oil at $49.69 a barrel. Without oil trains, Brown’s climate change initiatives will cause California energy prices to skyrocket.
When Brown left office in 1983 after his first stint as governor, California was the nation’s second largest producer of crude oil at 1.025 million barrels per day (bp/d), selling at an average price of about $28.73 a barrel. Thirty years later, California only dropped to the third largest producer of crude oil. But production plummeted to 545,000 bp/d with crude oil selling at an average price of about $100 a barrel. The math works out to California having half the production, while selling at three and a half times the price.
Californians are also the second biggest state consumers of energy. Residents pay the highest state gasoline price at $3.05 per gallon, and pay the highest retail electric rates (except for Alaska and Hawaii) at 17.35 cents a kilowatt. With the average U.S. price for gasoline at $2.78 a gallon and electricity at 10.80 cents a kilowatt, the math works out to California having half the production and fuel selling at almost four times the price.
The reason California consumers are being hammered is the Governor’s climate change initiatives, including Cap-and-Trade (“cap and tax”), plus renewable energy subsidies and environmental restrictions. When Brown signed a bill in April 2011 raising the minimum renewable portfolio standards (RPS) for utilities from 20% to 33% by 2020, he promised investments in wind, solar, biomass, and geothermal sources would create tens of thousands of jobs. The only things stimulated so far are higher prices for energy.
Senator Hill also complained that the California Office of Emergency Services surprised him by revealing that the once-a-week train carrying 1 million gallons of crude oil from Montana and North Dakota along the Feather River is soon to be doubled with a second train.
Railroads are making fortunes carrying North Dakota crude oil from the Bakken field at an average cost of $17 a barrel to California. The U.S. oil boom has overwhelmed America’s ability to move crude oil by the existing pipeline system. The distribution bottleneck has allowed railroads to haul millions of barrels of oil every day.
Adding to the traffic, fracking of underground shale formations in the Bakken region of North Dakota has allowed U.S. domestic oil production to reach 9 million barrels a day last month and is expected to continue adding an additional 100,000 barrels a day each month.
Six years ago, trains seldom pulled tank cars loaded with crude oil. Most railroads loaded their DOT-111 tankers with cargoes of non-explosive products like corn syrup sweeteners and industrial chemicals. Of the roughly 92,000 U.S. rail tankers being used today to haul crude oil and other flammable liquids, only 14,000 have the updated with modern safety features. Modifying the 78,000 DOT-111 rail tankers to meet higher flammability standards could cost railroads $5.2 billion, according to Bloomberg.
Although Brown has said he will not run for president, Democrats are already jockeying to be key players in a potential Brown campaign. But if the oil trains stop delivering crude oil priced a third cheaper than the market, California gasoline prices will skyrocket and any presidential hopes Brown may have will be over.
Senator Hill called for an immediate halt in shipments of crude oil and other hazardous materials along the 87-mile section of railroad along the Feather River that the California Public Utilities Commission identified as potentially hazardous in a derailment. Hill warned about potentially dangerous steep grades and sharp curves being near vital resources in remote areas that would be difficult to reach for emergency responders.