It appears time for the Oracle of Omaha to start pressing his bought-and-paid-for Washington well-be-dones as his immensely profitable rail freight business - built on the back of massive deflation-inducing malinvestment in US Shale businesses thanks to ZIRP and QE - is running out of steam. As WSJ reports, in March, oil-train traffic was down 7% on a year-over-year basis amid safety concerns and with lower crude prices, "the extra cost of rail makes it a tougher choice," notes on analyst, adding that the WTI-Brent spread needs to increase "for the economics of crude by rail" to make sense.
As WSJ reports,
The growth in oil-train shipments fueled by the U.S. energy boom has stalled in recent months, dampened by safety problems and low crude prices.
The number of train cars carrying crude and other petroleum products peaked last fall, according to data from the Association of American Railroads, and began edging down. In March, oil-train traffic was down 7% on a year-over-year basis.
Railroads have been a major beneficiary of the U.S. energy boom, as oil companies turned to trains to move crude to refineries from remote oil fields in North Dakota and other areas not served by pipelines. Rail shipments of oil have expanded from 20 million barrels in 2010 to just under 374 million barrels last year, according to the U.S. Energy Information Administration.
About 1.38 million barrels a day of oil and fuels like gasoline rode the rails in March, versus an average of 1.5 million barrels a day in the same period a year ago, according to a Wall Street Journal analysis of the railroad association’s data.
The slowdown comes as federal safety experts call for stronger tank cars. On Monday the National Transportation Safety Board recommended an aggressive five-year schedule for phasing out or upgrading older railcars used to haul crude-oil. A string of oil train accidents in recent months have resulted in spills, intense fires and community evacuations. The NTSB said railcars in use today rupture too quickly and aren’t fire-resistant enough.
BNSF Railway Co., which is responsible for about 70% of U.S. oil-train traffic, operated as many as 10 trains a day last year, but is averaging nine a day now, a spokesman said.
Languishing oil prices also make oil-train transportation look too expensive when compared to shipping in foreign oil.
“With lower crude prices, the extra cost of rail makes it a tougher choice,” compared to importing tankers filled with foreign crude, said Sandy Fielden, an analyst with RBN Energy LLC.
Shipping oil across the U.S. on a train can cost from about $6 a barrel to nearly $12, depending on where the oil is pumped and where it’s going, Genscape data show. That mode of transport only makes sense when the price of American crude-oil is significantly cheaper than oil pumped overseas.
At times in recent years, U.S. crude sold for $10 to $20 a barrel less than oil pumped in places like Europe and West Africa. The big differential has made shipping American oil on trains an attractive option, said Colin Halling, an analyst at Genscape. “The wider that spread is, the better it is for the economics of crude by rail,” he said.
In recent weeks, the price gap between U.S. and Brent, the benchmark foreign crude, has narrowed to about $7 a barrel, making some oil-train shipments too costly at this time.
* * *