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Guest Post: Will Rail Run Out Of Steam Post-Keystone?

Tyler Durden's picture




 

Submitted by Daniel Graeber of OilPrice.com,

More than 97,000 rail carloads of crude oil were delivered in the United States during the first quarter of the year. That's 20 percent more than the fourth quarter of 2012 and 166 percent more than during the same period last year. Rail shipments of grain, metallic ores and minerals declined, however. Oil companies are moving more of their oil by rail because pipeline capacity can't keep up with North American production gains. Last week, a pipeline planned from Texas to California was shelved because of the lack of shipper interest, though for rail, there's been relative surge in crude oil traffic. It remains to be seen if that can be sustained, however.

The Association of American Railroads said 97,135 carloads of crude oil traveled by rail in the United States during the first quarter of the year. That amounts to about 68 million barrels of oil over the course of four months. For the week ending May 25, rail shipments overall were down more than 3 percent compared to the same time last year. Grain deliveries were down 21.8 percent and metallic ores and minerals were down more than 10 percent when compared to last year.

Oil companies are turning to rail deliveries as North American oil production overwhelms existing pipeline capacity. Provided the U.S. government approves Keystone XL, it will be at least two more years before 830,000 barrels of oil per day in extra pipeline capacity comes on stream for U.S. refiners. In Canada, opposition to the Northern Gateway pipeline from the provincial government in British Columbia means an uncertain future for the 525,000 bpd project planned by Enbridge.

The American Petroleum Institute reports that U.S. oil production in March increased 13.8 percent year-on-year to 7.1 million barrels per day. For its part, the International Energy Agency said it expected North American oil production to account for more than 60 percent of the gains seen from outside the 12-member OPEC cartel. That suggests the rate at which production is increasing is faster than pipeline construction, federal permits notwithstanding.

Last week, pipeline company Kinder Morgan said it was focusing on rail deliveries from Texas oil fields for the short term. That followed a decision to scrap a pipeline that could've sent 277,000 bpd to California refiners. In March, Phillips 66 said it was "helping to shape the energy revolution in the U.S." by exploring its options for rail loading. Two years ago, BNSF Railway shipped 70,000 barrels of oil from its near Bakken Oil Express, a rail hub servicing North Dakota.

The debate over pipelines versus rail hinges on access, price and reliability. Rail shipments are more expensive than pipeline, but rail has more diversity. In terms of spills, pipelines are far more reliable than the alternative, but when a train derails, any oil spilled is typically measured in hundreds of gallons versus thousands of barrels. Kinder Morgan's lack of shipper interest suggests that, for now, there's not much interest in new pipelines, at least from Texas. While much of the argument is, at least in some circumstances, like comparing apples to oranges, for now, it seems trains are winning the race. What happens long-term with more pipeline access, however, remains to be seen.

 

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Wed, 06/05/2013 - 19:12 | 3627971 lolmao500
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Seems like there's an overproduction of oil... time for oil prices to go back where they belong... $30 a barrel.

Wed, 06/05/2013 - 19:13 | 3627974 James_Cole
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In Canada, opposition to the Northern Gateway pipeline from the provincial government in British Columbia means an uncertain future for the 525,000 bpd project planned by Enbridge.

Extremely unlikely to happen now, and even if the feds pushed it through it would still be years of legal wrangling ahead. So count that one out. 

Wed, 06/05/2013 - 19:24 | 3628004 angel_of_joy
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They'll do the same.

Move it by train.

Who owns CN Rail now ?

Wed, 06/05/2013 - 19:28 | 3628018 Joe Sixpack
Joe Sixpack's picture

I am sure Warren will have made his money, and dumped the railroads by then.

Wed, 06/05/2013 - 19:34 | 3628033 booboo
booboo's picture

Right, it really depends on what Mr Bubble has to say to the "magic negro". He may have the FEMA cattle car contract by now.

Wed, 06/05/2013 - 19:23 | 3627998 angel_of_joy
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Sweet dreams !

More likely, wait in line at the pump for bargain gas at 4.50 in the summer...

Wed, 06/05/2013 - 20:10 | 3628103 Nels
Nels's picture

Overproduction of oil?  There's also an overproduction of $, and an underproduction of Au.

When priced in gold, oil is cheap now.

http://fintrend.com/charts/gold-vs-oil-chart/

Wed, 06/05/2013 - 19:18 | 3627987 Stoploss
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Don't think for a second Warren Buffet didn't already know about this when he bought that rail car company. I remember "rail transports are going to do really well in the future".

Yeah, no shit huh?  Who needs a pipeline when you transport by rail, there is not enough demand to warrant a pipeline to begin with.

The ultimate __________ trade..

 

Busted.

Wed, 06/05/2013 - 19:23 | 3627999 Jim B
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Warren bullshit, the ultimate crony capitalist!

What a fing investing genius (/S)

Wed, 06/05/2013 - 19:35 | 3628036 buzzsaw99
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AAR also reported mixed rail traffic for the week ending May 25, 2013, with total U.S. weekly carloads of 281,727 carloads, down 3.3 percent compared with the same week last year...

Wed, 06/05/2013 - 21:12 | 3628277 Uber Vandal
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https://www.aar.org/newsandevents/Freight-Rail-Traffic/Documents/2013-05...

It's the carloadings of "other", read scrap and waste, that is rather troubling, for that is down 14.5% from this week in 2012, and down 5.3% from 2012 cumulative.

Keep in mind that a stronger economy tends to produce more scrap and waste than a weaker economy.

The link below is a bit outdated, but should help prove my point.

https://data360.wordpress.com/2012/08/24/gdp-and-trash-production-indica...

Wed, 06/05/2013 - 19:23 | 3627995 Muppet Pimp
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Buffet has been assured by the Obama administration that there will be no pipeline.  Good ol 'aw shucks' Warren.  Gosh, b'golly, he just wants what is best (for himself). 

http://www.youtube.com/watch?v=QBKwTSBBn7U

He even did the all black Steve Jobs look for the video!

Wed, 06/05/2013 - 19:27 | 3628016 Dr. Engali
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He sure does a good job of pulling off the harmless crazy uncle.

Wed, 06/05/2013 - 19:23 | 3628000 Dr. Engali
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There is no debate when it comes to rail over pipeline. Warren bought the rails then paid his boy to block the pipeline. That's it.... end of story.

Wed, 06/05/2013 - 19:58 | 3628085 sosoome
sosoome's picture

Good ole Amerikan fascism.

Wed, 06/05/2013 - 19:27 | 3628013 Cognitive Dissonance
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Planes, trains and automobiles. As American as J. P. Morgan and Goldman Sachs.

Wed, 06/05/2013 - 19:27 | 3628014 Pareto
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British Columbia really fucked up on this I don't mind saying, and it almost smacks of a sort of crab mentality.  So worried about your pristine geography, but, you'll be too fucking hungry to actually enjoy it.  There are a lot of technological add-ons enbridge would have been prepared to implement to satisfy regulatory (environmental) issues.  But nope.  fuck it.  Well there you go.  The land of landlocked resources and as a result of stubborn, political bullshit, everybody suffers and is worse off.

So fuck it.  Alberta will take it east.  Much of the (corridors) lines already exist and New Brunswick and Nova Scotia are ALL OVER this.  Plus New Brunswick wants to refine it as well.  BC can continue to sell post cards and smoked fish.

Wed, 06/05/2013 - 19:28 | 3628017 lolmao500
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Amerikkka fuck yeah! Ask questions to cops? Film them? Talk back?? 4 YEARS IN PRISON!! It passed the NY senate 50-13...  so bend over and prepare the lube!

http://www.wivb.com/dpp/news/new_york/bill-would-make-annoying-a-cop-a-c...

Bill would make annoying a cop a crime

Updated: Wednesday, 05 Jun 2013, 4:18 PM EDT
Published : Wednesday, 05 Jun 2013, 2:38 PM EDT

ALBANY, N.Y. (WIVB) - A bill currently making its way through the State Legislature would make it a crime to annoy a police officer, a move that could have far reaching consequences.

The State Senate passed the bill Wednesday that makes it felony to "harass, annoy, or threaten a police officer while on duty." The bill was sponsored by local Senators Pat Gallivan, George Maziarz and Michael Ranzenhofer, as well as Senator Joe Griffo (R) of Rome.

Griffo stated, "Police officers who risk their lives every day in our cities and on our highways deserve every possible protection, and those who treat them with disrespect, harass them and create situations that can lead to injuries deserve to pay a price for their actions."

Anyone found guilty under the bill, should it become law, could face up to four years in prison.

Wed, 06/05/2013 - 19:48 | 3628065 nmewn
nmewn's picture

Coming from a state that passed a law restricting residents & cops to seven rounds I'm not surprised by anything they do up there.

They really need to go to a one day work week, once a year, they can't even get despotism right ;-)

Wed, 06/05/2013 - 19:57 | 3628080 lolmao500
lolmao500's picture

Even for these scum, passing a law like that is big...

And yeah I agree the legislature should only work a week a year or something... that way, they can't screw the country more than it is...

Wed, 06/05/2013 - 20:43 | 3628123 nmewn
nmewn's picture

Oh yes, don't get me wrong.

The insidious thing about laws...ONCE PASSED...is they then have the vehicle to sneak little amendments into future laws.

The "harass, annoy, or threaten a police officer while on duty" can easily become, by later amendment or attachment to an unrealted piece of legislation...video taping a cop while on duty is harassment or annoying...or the following year it becomes..."annoying" a cop while off duty is also a felony.

Ya gotta nip this kind of bullshit in the bud...its always been a crime "threaten" anyone with bodily harm, including cops.

Wed, 06/05/2013 - 19:58 | 3628084 pragmatic hobo
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well ... it beats shoot-the-annoying-mofo-in-the-back policy implemented by NYPD and other major metropolitan police dept..

Wed, 06/05/2013 - 19:28 | 3628020 WTFUD
WTFUD's picture

The Keystone Kochs and Warden Buffet just refuse to die. You can't always get what you want!

Wed, 06/05/2013 - 19:30 | 3628024 Kreditanstalt
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But we financially-repressed peasants are going medieval...won't need a hell of a lot of oil when we get our horses and buggies going...

 

Wed, 06/05/2013 - 19:56 | 3628026 Monedas
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A tanker train is just a pipeline on wheels .... probably has less rolling resistance .... than pumping molasses .... fully loaded downhill to Texas .... back to Canada with illegal aliens .... duct taped to the Domeliner express !    They could ship back kerosene .... to wash the tar sands with and prepare it for the centrifuge .... the Petrotron .... continuous feed separator .... that mother spins 12,000 tons of material .... at any moment .... it's under the Calgary airport .... so it's running all year 24/7 !    How am I driving ?   Report discourteous driver to 1 (800) FUC - KOFF !    Do Chen got the contract for the Petrotron's tapered roller bearings !

Wed, 06/05/2013 - 20:03 | 3628094 Yen Cross
Yen Cross's picture

  Just like a typical liberal party. Let's build it when they won't come!  I'm certain the "mealy mouth" liberals are living on borrowed time!

Wed, 06/05/2013 - 20:28 | 3628122 Monedas
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"There will always be an _______________" !    (choose one: 1. Israel 2. England 3. Mealy mouthed liberals )  !

Wed, 06/05/2013 - 20:07 | 3628098 Stuck on Zero
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I have an idea.  Park all the rail tank cars stretching from Alberta down to Tulsa end to end.  Now weld a little section of pipe between each tank car.  Voila!  You have a pipeline.

 

Wed, 06/05/2013 - 20:22 | 3628133 Monedas
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Hmmm ?  Good idea .... connecting the dots .... between rail cars and pipelines .... where'd ya go to school .... Monedas Mechanical Arts Institute ? LOL

Wed, 06/05/2013 - 21:20 | 3628292 Stuck on Zero
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I got my degree from the redneck school of fine engineering: http://www.heavy.com/comedy/2012/04/the-20-awesomest-examples-of-redneck....

 

 

Wed, 06/05/2013 - 21:24 | 3628142 JuliaS
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I see nothing wrong with using railroads to temporarily boost transaction volume that may not last if the 2nd wave of the economic tsunami hits. Why build pipelines when the rail traffic is suffering from excess capacity precisely due to falling trade volume of other commodities. There are gonna be lots of empty train cars, ships and plains sitting around in the near future. Less business means cheaper delivery. Why build permanent pipes then?

I say, all of these are logical business decisions.

I'm in computing and we often rent processing power, even though it costs more compared to expanding infrastructure, the spikes in demand are typically short term. Then our own clusters sit idle for weeks.

Is this a leading indicator of anything? Don't think so. It's an indicator that railroads exist and that they are used to deliver goods.

Wed, 06/05/2013 - 22:00 | 3628394 Mr. Hudson
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: "Is this a leading indicator of anything? Don't think so. It's an indicator that railroads exist and that they are used to deliver goods."

 

...and they will be used to deliver people to the FEMA camps.

Thu, 06/06/2013 - 12:57 | 3628533 JuliaS
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They won't have to. A few "American Idol Auditions" or "Free beer and nachos" posters here and there, and people will deliver themselves... maybe even pay for the ticket.

Wed, 06/05/2013 - 21:14 | 3628280 Mad Max
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The Association of American Railroads said 97,135 carloads of crude oil traveled by rail in the United States during the first quarter of the year. That amounts to about 68 million barrels of oil over the course of four months.

Uh, don't most quarters have three months?

Wed, 06/05/2013 - 21:48 | 3628346 grunk
grunk's picture

Delware City, Delaware, there's an old Valero plant that has been modified to handle this oil. I guess it's a little dirtier than other oil. The rail cars are coming in at all hours, blocking roads and getting people all sorts of hinky. 

Warren Buffett and his legislative agenda.

Wed, 06/05/2013 - 21:58 | 3628387 ISEEIT
ISEEIT's picture

The great and mighty 'uncle warren' went big on rail about the time Dear Leader obozo went online.

What prescience huh?

No wonder they call him the 'oracle of Omaha' right?

Wed, 06/05/2013 - 23:05 | 3628557 kchrisc
kchrisc's picture

"Will Rail Run Out Of Steam Post-Keystone?"

Appreciate the article, thanks, but it is an irrelevant question. The US will cease to exist at some point during the pipeline's development and construction.

No matter what barometer what looks at, the evidence is clear, the US is done, just not yet gone.

The tsunami of returning dollars and dollar debt will wash it away like a village in Indonesia.

Thu, 06/06/2013 - 06:20 | 3629024 badameli
badameli's picture

From what I've read the Northern Gateway has been held up because the province of British Columbia wants to be able to get a slice of the profits. This is not really about people sticking it to the oil companies because of environmental beliefs. That's a red herring and convenient excuse to provide moral righteousness forholding up the project.

Thu, 06/06/2013 - 07:08 | 3629077 highwaytoserfdom
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fluidized bed coal power plants

forced western coal to east........   no polution control

billions acid rain fines............ politician pocket linning

military largest oil user......... supply/demand

forced insurnace/forced insurance on insurance.........AIG gen re Geiko progresive

The globalists will win, and everyone else will lose..  I fear as in 2008 shorting will be banned again.......... to be expected economy run by  on the one hand mutual master-raters  historic criminal jerk offs.

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