Amid U.S. Oil Boom, Railroads Are Beating Pipelines in Crude Transport
I got curious about the transport of crude and other petroleum products, in light of the derailment in Quebec last night.
Whaddaya know.
Last October, Kinder Morgan Energy Partners, the biggest U.S. pipeline operator, announced plans to build a 740-mile pipeline from the oil fields of West Texas to a refining hub outside Los Angeles. Dubbed the Freedom Pipeline, the $2 billion project would deliver 277,000 barrels a day of cheap Texas crude to West Coast refineries that had long relied on expensive oil shipped from Alaska’s North Slope or even foreign markets. All Kinder Morgan needed was to get regulatory approval and long-term contracts with large California refiners, including Valero Energy (VLO) and Tesoro (TSO).
In April, Kinder Morgan began negotiating agreements with refiners, who normally commit to buy predetermined amounts of oil for as long as 10 years. On May 31, however, Kinder Morgan announced it was canceling the project after Valero and Tesoro said they weren’t interested in buying the pipe’s oil on a long-term basis. They’d found a better way to get their hands on domestic crude: railroads.
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The rail industry is now hauling more crude than at any time since the days of John D. Rockefeller’s Standard Oil. According to the Association of American Railroads, trains transported a record 97,135 carloads of crude oil in the first quarter of 2013. That’s 166 percent more than during the first quarter of 2012 and 922 percent more than trains hauled during all of 2008. “This is a revolutionary change in crude oil logistics that has rarely happened before,” says Julius Walker, an energy strategist at UBS Securities (UBS). “Very quickly, railing crude has become much more competitive.”
While moving crude by pipeline still costs about half to one-third what it does to move it by rail, trains don’t require long-term contracts or need to wait for pipelines to be built. And while pipes stretch only from point A to point B, refiners can access nearly any market in the U.S. by rail.
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http://www.businessweek.com/articles/2013-06-13/amid-u-dot-s-dot-oil-boom-railroads-are-beating-pipelines-in-crude-transport
