On oil volatility, a tie goes to the feds
In aviation, the airlines and the aircraft manufacturers get plenty of input. But the Federal Aviation Administration gets the last word.
In pharmaceuticals, studies by the drug manufacturers are vital. But consumers rely on the U.S. Food and Drug Administration to check the math and sign off on the studies’ validity.
And as it is in aviation and pharmaceuticals, so it should be in the transportation of oil. Industry-sponsored studies matter. But as both the North Dakota Industrial Commission and North Dakota Petroleum Council should recognize, the public inevitably will be skeptical of such studies because of their inherent conflict of interest.
The council and commission’s leaders should embrace that skepticism, in part because doing so could turn the feeling to the state and industry’s advantage. Here’s how.
The issue arose last week because the Petroleum Council, an industry-supported group, released a study whose conclusions conflicted with federal reports. And because the topic at issue is the volatility of Bakken crude oil, the conflict counts.
“The data show that crude oil from the Bakken region in North Dakota tends to be more volatile and flammable than other crude oils,” the U.S. Department of Transportation declared in July.
Not so, said the study paid for by the Petroleum Council. Instead, it concluded, Bakken crude “is similar to many other light sweet crude oils produced and transported in the United States.”
Here’s the key: Probably they both are, as Reuters news service insightfully pointed out. “Bakken is no more volatile than other types of light crude, but of course it is considerably more volatile than medium or heavy crudes,” the news service noted.
“Therein lies the problem. … Bakken has not become more dangerous. But when U.S. railroads were hauling only small quantities of crude, much of it medium or heavy grades, the number of light oil cargoes was too low for the full risks to be apparent.
“Now that the number of light crude cargoes has increased by several orders of magnitude, the true riskiness of carrying it in old tank cars has been revealed.”
The Industrial Commission and the Petroleum Council should use Reuters’ insight as their guide.
If the Petroleum Council gets defensive about its study and quarrelsome with the feds, it’ll lose, at least in the key court of public opinion. The public has seen too many industry groups (think Big Tobacco) sponsor too many upbeat-but-later-overturned studies to give this one much weight.
The council itself would feel the same skepticism about a study issued by the Dakota Resource Council or another environmental group.
Instead, the Petroleum Council should welcome the federal oversight and invite further federally sponsored research. As Reuters suggests, the federal regulatory and industry studies may not be far apart after all; and in any event, the industry badly needs the certainty and consensus that a firm set of federal findings will deliver.
North Dakota state government needs the same thing.
The Constitution gives the federal government the power to regulate interstate commerce. So, North Dakota state leaders and industry officials now should pull in the same direction, which is to push the federal government to draft without delay the rules for the oil industry to live by.
— Tom Dennis for the Grand Forks Herald