Rail Tops Pipelines as Bakken Crude Oil Transport

With the current U.S. shale boom, the use of the railway system has become popular as an alternative means of transport. While pipelines are a cheaper transport mode, rail systems offer more earnings opportunity to oil producers. Railcars can reach the Bakken Formation in N. Dakota, pipelines can’t.

This is probably the reason why, in 2011, more than $20 billion has been invested in oil transport systems in the U.S., particularly on railways.

The EIA disclosed that the use of railcars as a mode of crude transport has been in practice for many years, although in very small volumes. Producers started to move large quantities of it only three to four years ago.  In the first half of 2012, EIA noted that petroleum movement by rail grew by 38 percent.

In June of the same year, railway shipments soared more than 50 percent, approximately more than 40,000 tanker cars.

This is a significant growth considering that, a few years ago, railway systems were not even a hot topic among oil industry circles.

Last year, North Dakota’s crude oil production for October was shipped to markets by rail at 52 percent and via pipeline at 38 percent.

Analysts project that the railway transport sector will be facing very good prospects amid a continuing shale boom in North Dakota, Texas and Montana.

According to Holly Arthur, one of the VPs of the Association of American Railroads (AAR), if these growth trends indeed continue, railway crude oil shipments will reach more than 600,000 bpd within the second or third quarter this year.

The Burlington Northern Santa Fe has been responsible for shipping more than 30 percent of crude oil from the Bakken region.  The firm’s Chief Executive Officer, Mathew Rose, said that business has been brisk recently.  Daily shipment of crude reaches more than 500,000 bpd.  By year end, Burlington is expected to ship higher crude volumes of 700,000 bpd.

Rose added that a growing number of oil producers prefer shipping crude by rail because it is safer and more reliable compared with pipeline systems.

Railways present an opportunity for oil producers to bring their product to more areas quickly, while making significant gains from the more competitive crude oil prices in these regions.