All Aboard! Why Oil Producers are Choosing Rail

Justin Christensen |

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Having an abundant supply of any product only matters if it can be used. As the U.S. tight oil business continues to grow, so does the challenge of getting it to refineries for processing and use.

While the majority of crude oil is still shipped by pipeline, railways are becoming the preferred method of transport as the industry tries to keep up with production. The Association of American Railroads reported that 407,642 carloads of crude were transported in 2013 – a significant increase from just 9,500 in 2008.

Here’s why.

  1. It’s more efficient. Shipping oil to the Gulf Coast from North Dakota’s Bakken Basin takes about 40 days by pipeline, versus only 5-7 by rail.
  2. There’s more infrastructure. With 140,000 miles of track across the country, trains can reach a larger network of locations than pipelines, which only run 57,000 miles.
  3. It’s cheaper. It costs about $10 to $15 a barrel to transport oil by rail, but building more lines takes less time and money than laying new pipelines. It’s also less invasive in terms of the environment and less arduous in terms of regulations.

All of this rail activity has had an economic impact as well. Oil producers are investing millions of dollars to facilitate moving their product by rail. In the last year and a half, all of the refineries in Washington State have either built new lines or are in the process of doing so.

New facilities are also being constructed in Texas to help.

With expanded infrastructure, situations such as the bottlenecking of oil shipments in North Dakota, which actually happened a few years ago, are less likely – and producers will be able to meet demand across the country, which is also necessary as the U.S. continues to move toward energy independence.

Just how do other modes of transport compare?

Trucks

They may have the least storage capacity, but trucks have the greatest flexibility in reaching potential destinations. This often makes them the final step in the transport process as oil and refined products are delivered to their intended storage locations.

Tankers and Barges

Tankers are primarily the most cost effective means of shipping large volumes of oil and essentially the only practical means of reaching locations where the local market is lacking. With a number of compartments, they can conveniently facilitate a number of pickups and deliveries.

A standard 30,000-barrel tank barge can haul the same quantity of oil as 45 rail cars for around one third the cost. They also cost about 20 to 35% less than shipping by pipeline depending on the route. Operators can maximize runs as well – transporting crude down to refineries and then delivering refined products on the return trip.

Pipelines

Overall, pipelines are the most efficient method of transporting oil. It only costs $5 a barrel and enormous volumes can be shipped with very little human effort. U.S. refineries received more than 3 billion barrels of crude oil via pipeline in 2012.

Interestingly enough, the approach to the same situation can be different depending on the location. For example, in Canada, with oil sands more remotely located in northern Alberta, it is cheaper to import fuel from the U.S. than it is to build infrastructure to transport it across to the far eastern provinces.

As the oil industry grows and producers seek cheaper and faster methods to meet demand, staying connected with your fuel distributor will keep your day-to-day operations and future goals aligned with the latest trends in the industry.