Carpe Diem

Oil shipments by rail have doubled in two years and have helped the revival of a new ‘railroad age’

railoilThe Association of American Railroads released its weekly report today on US rail traffic. For the week ending April 13, US railroads shipped 17,913 carloads of crude oil, an increase of 51.2% compared to the same week last year. Year-to-date, more than 200,000 carloads of oil products have moved by rail, which is a 56.4% increase over last year, and more than double the 99,890 carloads of oil shipped in 2011 over the same period (see chart above).

America’s shale oil revolution has been very good for US railroads, and is just one of hundreds of examples of how shale prosperity is spreading across the country, generating benefits for: a) individuals like oil field photographer Renae Mitchell, b) landowners in North Dakota, Texas, Pennsylvania, and Wisconsin, who are receiving millions of dollars in royalty payments for oil, gas and fracking sand, c) the thousands of workers who are being hired for well-paying oil field jobs in Texas and North Dakota, and d) entire industries like the railroad business. The increased shipments of oil by rail, have helped offset some of the decline in rail shipments of coal, and have contributed to bringing year-to-date rail traffic in 2012 above last year’s traffic by almost 1%.

As the WSJ reported recently,

Welcome to the revival of the Railroad Age. North America’s major freight railroads are in the midst of a building boom unlike anything since the industry’s Gilded Age heyday in the 19th century—this year pouring $14 billion into rail yards, refueling stations, additional track. With enhanced speed and efficiency, rail is fast becoming a dominant player in the nation’s commercial transport system and a vital cog in its economic recovery.

Oil nearly always travels below ground—by pipeline. Unlike pipelines, which travel between two fixed points, trains can transport the oil in many more directions. They also let producers go where the demand is—taking advantage of spreads of as much as $25 a barrel in markets pipelines can’t reach.

Until recently, “crude by rail” was just an experiment. But by November [of last year], big oil players had carved out a plan here [in North Dakota], dooming a new pipeline project in favor of a dozen rail-loading sheds. By year’s end, more oil was moving out of North Dakota by rail than by pipeline.

Update: In the just-released video below “Why We Put Oil on Trains,” Motley Fool contributor Aimee Duffy explains what started this trend, which companies it affects, and why producers in plays like North Dakota’s Bakken Shale may want to stick to shipping via rail for a longer time than some analysts think.

11 thoughts on “Oil shipments by rail have doubled in two years and have helped the revival of a new ‘railroad age’

  1. Until recently, “crude by rail” was just an experiment. But by November [of last year], big oil players had carved out a plan here [in North Dakota], dooming a new pipeline project in favor of a dozen rail-loading sheds. By year’s end, more oil was moving out of North Dakota by rail than by pipeline.

    That is less efficient and provides less revenues for producers who have cash flow problems. It is a sign that the US political system is broken.

    • I would not term it an experiment, since that was what was first used by Standard Oil in the 1860s and 1870s. In fact it was rebates where Standard said we will ship this much oil if you give us a rebate that led to a lot of its troubles. The pipelines came later, and when as noted you have a stable system of sources and destinations it does work well. When however the source and destination is not stable over the long run, then rail is better. Consider that WTI has been 10 to 20 dollars cheaper than Brent because there are not the pipelines to get oil from Cushing Ok, to the gulf coast refineries, let alone the east coast. Once mid continent product ramped up there was no way to get the oil from Cushing leading to the price discounts.

    • BH owns Union Tank Car which has a large tank car fleet. It does not however have “most” of the fleet as there are other very large players in the game also.

  2. What I find interesting is the transportation network that is being utilized.
    Our national landscape is being renovated by an upgrading of our transportation infrastructure. The global economy that emerged in the 1990’s is slowly re-integrating our rail, trucking, and interior waterways along with air.
    The Panama Canal is being upgraded to handle larger sea-going vessels and the bigger ones to come in the nearby future. Sea-going ports around the nation are spending hundreds of millions of dollars at each port to upgrade their facilities to capture future business, with our largest port, Los Angeles-Long Beach, spending billions. The Savannah, GA/Charleston, SC port is aiming to compete with the West Coast ports for some of that business with Asia, both ways as Wal-Mart and car manufacturers in the Southeastern States see opportunities ahead.
    Since the 1990’s the Inland Empire Area of Southern California has been transformed from a rural agricultural belt to a national transportation hub including rail, truck, and large distribution warehouses that feed the national byways with freight coming from Asia. The dairy farms that once populated the area are being priced out of the region. There have been so many massive warehouses built for the new business that the regional utility company has entered into agreements to utilize the roof-tops for solar panels for generating electricity for the region.
    In the inland water-ways the Ohio River is being upgraded all along the river as more movement of freight is being revived. The development along the Arkansas River still has potential as Wichita, KS is a small center where manufacturing is a significant part of the economy – twice what manufacturing is to the national economy. And over the last couple of decades there have been large beef processing facilities built to handle the cattle raised in the old Dust Belt. All of this feeding into the Mighty Mississippi, which is undergoing its own redevelopment along with the modernization of the Port of New Orleans and Port Arthur and Beaumont, Texas.
    The infrastructure will be there for America to revitalize its industrial base and expand its manufacturing capability and increase its exporting prowess. In addition, as the Panama Canal develops, there is the potential for the rest of Latin America to follow. It is a great opportunity for economic development that would raise the living standards, bring progress to the fore, and ease the illegal immigration which has burdened several of the countries.

  3. Pipe line shipments are the safest means of shipping oil, even though there can be problems in any method of shipment. It is just crazy to increase rail shipments today regardless if it was common over 100 years ago.

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