Thursday, September 20, 2012

US oil industry a boom for railroads

The booming US oil industry has created opportunities for transportation providers. Perhaps the rail has benefited the most from the shale oil production within the continental US.  This is due in part of no existing pipelines connecting these regions, such as those of the Bakken region of the Dakotas and Montana, to refinery centers.

According to the Association of American Railroads, the Class I railroads have seen an increase of more than 30% in carloads of crude oil carried from 2011 to the first half of 2012. For the first six months of 2012, rail operators moved 88,026 carloads of crude oil compared to less than 10,000 carloads in 2008.

While Class I railroads Union Pacific and Canadian National (CN) have made investments in this space, the two major railroads that appear to be benefiting the most from the Bakken region in particular, are BNSF and Canadian Pacific. Both Class I railroads have direct rail access to the region and have been making big investments.

BNSF announced that it has increased capacity this year to enable the railroad to haul one million barrels per day out of the Williston Basin in North Dakota and Montana. The rail company noted that it plans to invest $197m in 2012 on projects in North Dakota and Montana. Some of those projects include 2,188 miles of track surfacing and two new inspection tracks.

Canadian Pacific shipped more than 23,000 barrels per day of crude from the Bakken in 2011 and plans to increase that to 70,000 carloads in coming years. A 35,000-barrel-per-day terminal has been built in Van Hook, North Dakota. This hub receives truck and tanker shipments of crude oil and condensate from the Bakken shale prospect for shipment to markets elsewhere in the country. Canadian Pacific is the only railway company using this terminal. The company has also been successful in several agreements with new sand processing plants, including a recent one with U.S. Silica Holdings, Inc. to be the exclusive rail service provider at the company's Sparta mine.

While more expensive than using pipelines, shipping by rail is more flexible, by allowing producers to route shipments to refineries that are paying more for crude. "We're never going to be at a place where we believe rail will be a replacement for pipelines. But we are a good complement that gives the oil industry flexibility and capacity," said a spokesperson for Canadian Pacific.