Report: More Crude Oil is being hauled by railway than any time
since Rockefeller’s Standard Oil
A June 13, 2013 report from Bloomberg Business reports that railroads are overtaking pipelines as the main mode transport:
America’s energy boom has left the middle of the country awash in cheap oil. But as pipeline companies scramble to spend billions of dollars to build new pipes to tap these hot new fields, they’re discovering that railroads have beaten them to the punch. By laying a few extra miles of track and building new loading facilities, oil and gas operators are quickly connecting remote areas of oil production with the existing networks of big railroads such as Union Pacific (UNP) and BNSF Railway (BRK/A). On the other end, they’re running tracks directly into refining complexes as far away as Philadelphia and Puget Sound. These rail projects can often be finished in a matter of months at a cost that’s usually in the millions, not billions.
The rail industry is now hauling more crude than at any time since the days of John D. Rockefeller’s Standard Oil. According to the Association of American Railroads, trains transported a record 97,135 carloads of crude oil in the first quarter of 2013. That’s 166 percent more than during the first quarter of 2012 and 922 percent more than trains hauled during all of 2008. “This is a revolutionary change in crude oil logistics that has rarely happened before,” says Julius Walker, an energy strategist at UBS Securities (UBS). “Very quickly, railing crude has become much more competitive.”
While moving crude by pipeline still costs about half to one-third what it does to move it by rail, trains don’t require long-term contracts or need to wait for pipelines to be built. And while pipes stretch only from point A to point B, refiners can access nearly any market in the U.S. by rail.
In the ultimate sign that rail is more than a fad, pipeline companies have started investing in rail projects. In December, Plains All American Pipeline (PAA) spent $500 million to buy four terminals in North Dakota, Texas, Colorado, and Louisiana, and one to be built in Bakersfield, Calif. Even Kinder Morgan is investing in a crude-by-rail terminal in Houston capable of taking delivery of 210,000 barrels of oil per day. “You might think of pipelines as our competitor, and they are,” says John Miller, vice president for sales of industrial products at BNSF. “But they’re also becoming our customers.”
The bottom line: The amount of U.S. crude oil being moved by railroads has increased 166 percent in the past 12 months.