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Guest Post: Rail May Hold Its Own Against Pipelines

Tyler Durden's picture




 

Submitted by Daniel Graeber of OilPrice.com,

The Association of American Railroads reports the number of rail tankers carrying crude oil and petroleum products in the United States increased more than 35 percent during the first six months of the year when compared with 2011. After the U.S. Energy Department, in its report, noted the lack of pipeline infrastructure in North Dakota, British supermajor BP announced it was considering rail to bring oil from the Bakken formation there to its refinery in Washington state. In terms of the environmental footprint, meanwhile, rail deliveries account for less than 1 percent of the total emissions from the transportation sector. These findings come even though rail shipments are three times more expensive than pipeline deliveries
 
The AAR finds that 241,000 rail tanker cars hauled oil during the six-month period ending in June, a 38 percent increase over the same period in 2011. For June, rail deliveries increased 51 percent over their 2011 levels for the month. Each rail tanker carries around 700 barrels of oil, meaning June deliveries translated to nearly 1 million barrels per day. The U.S. Energy Department's Energy Information Administration attributes much of the increase in rail deliveries to the oil boom under way in North Dakota, which in March became the second-largest oil producing U.S. state. Oil producers in the region, however, rely on rail to get oil out of the region and BP this week said it was considering a rail project to bring Bakken crude to its 225,000-bpd refinery in Washington. The permitting process could begin as early as next month.
 
Rail deliveries, however, cost, on average, $15 per barrel compared with the $5 per barrel for deliveries through pipeline systems. On the other hand, the rail system is getting less energy intensive. While the transportation sector accounts for about 25 percent of the global energy-related carbon dioxide emissions, rail represents a minor fraction of that total. Across the board, emissions for transportation are increasing in every sector except rail, which accounts for less than 1 percent of total CO2 emissions for the sector.
 
When completed, the entire Keystone oil pipeline network could carry about 1.1 million bpd compared with the same approximate total for the entire United States for rail. The 3,100-mile Enbridge Pipeline System, which stretches from the Athabasca oil sands facilities in Alberta to oil refineries in the Midwest, can carry, on average, 1.4 million bpd. Last week, however, more than 1,000 barrels oil spilled from a section of that pipeline in Wisconsin. While Enbridge said much of the release was contained, the incident occurred one day after the two-year anniversary of the costliest onshore crude oil spill in U.S. history from a section of the same pipeline network. Though in terms of volume, pipeline transportation has proved its merit, the move by BP in the Bakken formation suggests rail transit remains a viable option for the industry.

 

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Thu, 08/02/2012 - 22:58 | 2674760 LetThemEatRand
LetThemEatRand's picture

You mean oil can be carried and jobs created through means other than building a pipeline?  How .... obvious.  Let's make it a cultural divide issue anyway.

Thu, 08/02/2012 - 23:01 | 2674765 Fecklesslackey
Fecklesslackey's picture

Well sure ... we're working on that here in California. With our planned high speed rail, we will be able to move oil from Bakersfield to Fresno in no time flat ... (because no humans will be riding, there will be lots of space)

Thu, 08/02/2012 - 23:11 | 2674780 zaphod
zaphod's picture

God I'm happy I loaded up on pipeline MLPs back in '09. These things are no brainers.

Thu, 08/02/2012 - 23:41 | 2674811 jeff montanye
jeff montanye's picture

but what about the water?  

as i learned from my star turn in "gimme green" (http://www.imdb.com/title/tt1015986/) (i'm the guy knocking spider webs out of his backyard; the one who was told "the natural look has got to go"), if all the water in the world is one gallon, the accessible fresh water is two tablespoons (or something, give me a break i'm a diva).

Fri, 08/03/2012 - 03:02 | 2675010 malikai
malikai's picture

So it looks like that bakken oil or refined products could be exported to Asia. I wonder what benchmark they would use for pricing exported crude? WTI? LOL!

$15/bbl for trasport is a bit of a margin killer unless they export refined products. And even then it's expensive. I get the feeling they should be doing olefins if they want to make a buck doing that.

Fri, 08/03/2012 - 00:27 | 2674884 azusgm
azusgm's picture

Light sweet, yes.

Bitumen, no.

Transporting raw product from the tar sands will be like sandblasting the interior of the pipe 24/7.

Put that stuff on the rails if you won't refine it onsite in Alberta.

Fri, 08/03/2012 - 00:46 | 2674906 0z
0z's picture

It has to be refined, and mixed with lighter crudes anyways. That is why we call it syncrude.

Fri, 08/03/2012 - 00:53 | 2674913 The Monkey
The Monkey's picture

Did the high speed rail project issue stock? If so, did CALPERS invest? I'm guessing you can get on board the speculative stimulatus wagon c/o Janet Yellen. She already needs to ramp Facebook.

Thu, 08/02/2012 - 23:12 | 2674781 q99x2
q99x2's picture

Buffet's railroads don't need no stinkin pipeline.

Thu, 08/02/2012 - 23:24 | 2674804 DeadFred
DeadFred's picture

The advantage of this plan is Uncle Warren gets to make more millions and if the is a pipeline break oil spill it can happen in some nasty inner city rail junction that's already polluted. What can go wrong?

Fri, 08/03/2012 - 00:35 | 2674893 ken4aub
ken4aub's picture

I agree 100%. The Obama smack down of the pipeline is payback to uncle warren for his continued support.

Fri, 08/03/2012 - 00:35 | 2674894 ken4aub
ken4aub's picture

I agree 100%. The Obama smack down of the pipeline is payback to uncle warren for his continued support.

Fri, 08/03/2012 - 00:35 | 2674895 ken4aub
ken4aub's picture

I agree 100%. The Obama smack down of the pipeline is payback to uncle warren for his continued support.

Thu, 08/02/2012 - 23:15 | 2674787 BigInJapan
BigInJapan's picture

Rail is a good way to get around Commies.

Fri, 08/03/2012 - 04:24 | 2675049 francis_sawyer
francis_sawyer's picture

It's also a good way to get commies around...

Thu, 08/02/2012 - 23:17 | 2674791 russwinter
russwinter's picture

Citi Research report:

pipeline: -$1-3

rail 7-9

truck 12-17

Thu, 08/02/2012 - 23:20 | 2674795 LetThemEatRand
LetThemEatRand's picture

Oil was $40/b and sub-$2/gallon all over the U.S. just a few years ago with no pipeline.  However did they do it?  Think about it. 

Thu, 08/02/2012 - 23:44 | 2674827 brettd
brettd's picture

The chinese were riding bikes.

Thu, 08/02/2012 - 23:51 | 2674838 LetThemEatRand
LetThemEatRand's picture

Perhaps they will trade in their cars when O'Romna builds the pipeline.

Thu, 08/02/2012 - 23:23 | 2674799 Bansters-in-my-...
Bansters-in-my- feces's picture

Speaking of tankers,USA Military jet tankers sprayed chemtrails in the air all day today.

They are starting to be directly responsible for deaths of civilians with thier terrorism.

Thu, 08/02/2012 - 23:23 | 2674800 Mad Max
Mad Max's picture

Rail is also more flexible when:

-your total volume of oil and refined products is decreasing;

-you don't know where your buyers are going to be located from year to year;

-the "oil" is heavier and heavier sludge that can barely crawl through a pipeline;

-your pipelines are starting to corrode, freeze, or clog from low volumes and slow transit times.

 

Happy times, happy times.  Coming soon to northern Alaska - this or roadtrains.

Fri, 08/03/2012 - 01:08 | 2674933 CrashisOptimistic
CrashisOptimistic's picture

All true.  Two additional issues:

1) The examination of "transport" was done in the article on the basis of emissions.  NOT IMPORTANT.  What is more important is how much oil is being burned to move that oil.  It's an addition to the EROEI.  You burn a lotta BTUs to get 5.6 million in 1 barrel of oil sands oil, and now lets add some more to that to move it from point A to point B.  This is not in the article.  What energy was burned to move the oil by train, vs what is burned in the pumps that move it by pipeline.  Don't care about the pollution aspect, care about the physics.

2) The Alaska pipeline flow has been cratering of course.  What few realize is that when the flow drops under 600K bpd, the hot oil won't keep the pipeline hot enough in mid winter and waxes form and clog it up.  All along the length.  It's not just a snake to clear a clog.  The whole thing becomes a clog.  This is a huge issue and will arrive perhaps this coming winter.  There isn't enough oil coming out of the ground up there to make the flow faster.  There will have to be a crash program to put heaters along the miles and miles and miles of length to keep that 600K bpd flowing (which is still more than the Bakken produces).

Fri, 08/03/2012 - 04:05 | 2675039 virgule
virgule's picture

You forgot to mention, to keep the comparisons fair, the interesting problem of manually loading and unloading those 1,429 car trains, each day and every day, with no accident nor spill, etc. compared to essentially automated / remote-controlled pipeline operations (I'm ignoring here that both also have their share of maintenance & integrity issues...)

Thu, 08/02/2012 - 23:24 | 2674803 Yen Cross
Yen Cross's picture

 Warren  Buffet/ Burlington Northern  , comes to mind? That ass hat knows nothing about rail roads! Arkansaw/ ain't Colorado!

Thu, 08/02/2012 - 23:26 | 2674808 Colonel
Colonel's picture

Yeah, because you can't ship "dissenters" to FEMA camps through pipelines isn't that right Buffet?

Thu, 08/02/2012 - 23:31 | 2674812 LawsofPhysics
LawsofPhysics's picture

And mr buffet (and myself) are very happy.

Thu, 08/02/2012 - 23:37 | 2674820 Colonel
Colonel's picture

And irony is while inside of a crowded cattle car listening to the click clack of train wheels you recall how happy you were.

Thu, 08/02/2012 - 23:50 | 2674837 Yen Cross
Yen Cross's picture

 When you " Friends" , get over your "EGO's"?

    Non of you have ever been an enemy to me! Tyler puts like minded people together!

Fri, 08/03/2012 - 00:22 | 2674876 bankruptcylawyer
bankruptcylawyer's picture

testicles,

 

your posts are usually excellent and detailed. this one, was a bit oily. how about some commentary about knight capital and, combined with mfg, and pfg and kfc and other acronyms------how we can expect the trend to lead the next big shizazter in the markets.

Fri, 08/03/2012 - 00:40 | 2674898 Yen Cross
Yen Cross's picture

mmm. I hear ya.  Just don't get cocky! Lawyers have a general propensity to act like idiots!

Fri, 08/03/2012 - 00:25 | 2674881 adr
adr's picture

So why is gas $3.90 right now? I couldn't find news of a whale fart in the gulf, or any attack in the middle east.

Pure and simple price gouging by corproate owned stations? Yep.

Funny thing is Sam's club is still selling for $3.50. $.40 difference from across the street. Sure makes sense.

Fuck anything that deals with oil. Fuck anything that deals with the market.

I think I'm going long navy beans and ramen.

Fri, 08/03/2012 - 00:43 | 2674902 Yen Cross
Yen Cross's picture

  Quit tring to load /Fill-ups/  I'll discuss this with you old school!

  Fuch Big Oil!

Fri, 08/03/2012 - 01:00 | 2674922 I am a Man I am...
I am a Man I am Forty's picture

these rail and pipeline costs are way high from the presentations i've read, and by oasis petroleum if u want to make some money

Fri, 08/03/2012 - 01:21 | 2674947 azusgm
azusgm's picture

Get out of the markets if you want to preserve your money. Buy something physical - metals, beans, ammo, dirt, used tools off Craigslist, whatever. Just be sure you can touch it and you don't have a counterparty. Next, do something productive with your assets. Make it real and keep it real.

I closed my accounts ASAP after MFGlobal fell apart. Won't be back until Corzine is behind bars. Therefore, I won't be back. Sometimes I really, really want to put a little money to work in the market. Then things like PFG or Knight happen. Fuggitaboudit. There are more interesting ways to drain my cash.

Fri, 08/03/2012 - 01:29 | 2674957 mharry
mharry's picture

Sure, a train is as efficent as a pipe. Of course there are more train crashes than pipeline leaks, but who cares. It's all about paying back Buffet, you little people should go away.

Fri, 08/03/2012 - 01:50 | 2674973 Theosebes Goodfellow
Theosebes Goodfellow's picture

So let me see if I can work this out. The economy is in the tank. We are driving less than ever before. The nation's supplies of oil are through the roof. Obama flip-flopped on whether to build the pipeline which was very profitable to his economic advisor, Warren Buffet who owns Burlington Northern Santa Fe LLC. And to boot the price of gasoline is climbing again. Can you say cronyism and market manipulation?

You know, all this would end if they simply made it so that if you held an oil futures contract for three days you had to take delivery, (not my idea but I think very functional). Then watch the price of oil get reattached to "fair market value".

Fri, 08/03/2012 - 03:23 | 2675015 HungrySeagull
HungrySeagull's picture

There is a Unit Train of Ethanol or similar coming through almost daily. You are looking at about 120 tank cars if that.

 

A tidbit, Union Tank Lines in Illinois I think has been building tank cars hand over fist day and night I hear.

 

In WW2 the US Railroads put everything on Tankers east and west to stop the Nazi submarines from sinking tankers in our waters. Record tonnage for the time...

Fri, 08/03/2012 - 05:03 | 2675059 disabledvet
disabledvet's picture

for rail transport..indeed all transport...to be cost effective "it needs a load coming back." one of the advantages of shipping to Washington State is that the now empty rail cars can pick up loads from the Washington State shipping terminals and bring them back to the Mid West for distribution. With the significant environmental protests against Enbridge which wants to build an oil pipeline through British Columbia rail could be a cost effective alternative. (I think that's an old Texaco refinery out that way in Washington State actually. But I could be wrong on that.) Nothing says rail like North Dakota...they still have short lines and "HQ'ed in Bismark"...and obviously they have more than just oil that they can ship. You also have trucking companies in Washington State...very good ones actually. And of course "there is Boeing, Microsoft, Intel, Micron Technologies, JR Simplot and sugar beets." Oh...and of course "some puny retailer called Amazon.com" and a mid-west financial genius called Warren Buffet who actually owns the rail line! "Other than that...THEY GOT NOTHIN'!" I remember when the line in Seattle was "last one out turn out the lights." Well...they won't have any blackouts out that way either courtesy of the Snake and Columbia rivers...nor water issues either. Oh and they have a massive barge system that plies those rivers as well. Boy did i love living out that way. A piece of desert scrub brush was worth more than a house up this way. Still is actually.

Fri, 08/03/2012 - 05:41 | 2675070 Colonial Intent
Colonial Intent's picture

Keystone : canadian oil shipped across america to be sold to china.

Short term corporate profit at the expense of long term national security is a no brainer.

Look at iraq/afghan, so it stopped china's oil ambitiobns for a while but not for long, once we leave afghan, china builds its pipelines and the west declines.

You people do understand that afghan has a land border with china and that our best trained troops are in the east of the country fighting smugglers, china buys guns from russkis and gives them to taliban.

but then USA would need to believe that its own people are its true wealth and not just their bank accounts.

Good luck with that.

 

Fri, 08/03/2012 - 07:27 | 2675160 Tom Green Swedish
Tom Green Swedish's picture

I am not even going to comment on this one.  Its amazing how little people know about the transportation industry who don't work in it.

Fri, 08/03/2012 - 09:09 | 2675426 oddjob
oddjob's picture

You must have a cabin on Wabamun Lake.

http://www.tc.gc.ca/media/documents/rsa-lsf/wabamun.pdf

Sat, 08/04/2012 - 08:37 | 2677739 Tom Green Swedish
Tom Green Swedish's picture

The railroads will only compete until pipelines come online 2-3 years.  Did you read the fact that it costs 10 per barrel more on the railroad than pipe? The railroad hauls "petroleum products" (mostly not crude) all over the USA. The railroad hauls sand coal and maybe water, not crude.

Fri, 08/03/2012 - 07:48 | 2675181 Yellowhoard
Yellowhoard's picture

Killing Keystone was a payoff to Buffet from day one.

Fri, 08/03/2012 - 10:03 | 2675609 dogbreath
dogbreath's picture

Hey Yall.

Want to read about the pipeline issues and eco-lefties.   here is a must read site.  http://fairquestions.typepad.com/rethink_campaigns/2012/05/vancouver-mayor-and-rockefeller-brothers-tar-sands-campaign.html

Fri, 08/03/2012 - 10:03 | 2675611 ian807
ian807's picture

And at the end of the oil, you have a useful rail system instead of a useless pipeline.

Sat, 08/04/2012 - 11:53 | 2678013 Fort Mac Flatlander
Fort Mac Flatlander's picture

Just a little clarification.  Syncrude produces synthetic crude oil.  This is upgraded to a higher quality than WTI on site in Fort McMurray.  The final product going into the pipe has no additional dilluent or sand in its contents.  I do not know about the other plants who ship raw bitumen, but at Syncrude we process it at home.

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