Rigzone: Rail Delivery of Oil, Petroleum Products Continues to Increase

From Robin Dupre at Rigzone.....

With U.S. crude oil producing at record amounts and outstripping pipeline capacity, the country is relying heavily on railroads to move new crude oil to refineries and storage centers, reported the U.S. Energy Information Administration (EIA) Wednesday.

The total amount of crude oil and refined products being transported by rail is close to 356,000 carloads during the first half of 2013, up 48 percent from the same period last year, according to Association of American Railroads.

“U.S. weekly car loadings of crude oil and petroleum products averaged nearly 13,700 rail tankers during the January to June 2013 period. With one rail carload holding about 700 barrels, the amount of crude oil and petroleum products shipped by rail was equal to 1.37 million barrels per day during the first half of 2013, up from 927,000 barrels per day during the first six months of last year. Crude oil accounted for about half of the 2013 daily volumes," reported AAR.

"Increases in rail transportation multifactor productivity can be traced to technical progress, such as improved capital inputs and technological changes in the form of improved methods of service delivery. Improved technology for locomotives, freight cars, and track and structures have increased reliability and reduced maintenance needs," added the United States Department of Transportation.

A large portion of the produced crude oil is from North Dakota where there is not enough pipeline capacity to move supplies, therefore dependency on delivery of oil by rail is substantial. North Dakota currently ranks as the second largest oil producing state after Texas, reported EIA.

"The roughly 700,000 barrels per day of crude oil, which includes both imported and domestic crude oil, moved by rail compares with the 7.2 million barrels of crude oil the United States produces daily," added EIA.

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EIA: Rail Deliveries of Crude Oil and Petroleum Products up 38% in First Half of 2012

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Railroads are playing a more important role in transporting U.S. crude oil to refineries, especially oil production from North Dakota's Bakken formation where there is limited pipeline infrastructure to move supplies. The amount of crude oil and petroleum products transported by U.S. railways during the first half of 2012 increased 38% from the same period in 2011, according to industry data.

The number of rail tanker cars hauling crude oil and petroleum products totaled close to 241,000 during January-June 2012 compared to 174,000 over the same period in 2011, according to the Association of American Railroads (AAR). Rail deliveries of crude oil and petroleum products in June alone jumped 51% to 42,000 tanker cars from a year earlier to an average weekly record high of 10,500 tanker cars for the month.

One rail tanker car holds about 700 barrels. This would be equivalent to about 927,000 barrels per day (bbl/d) of oil and petroleum products shipped, on average, during the first half of 2012 versus 673,000 bbl/d in the same period in 2011, and June 2012 shipments were almost 980,000 bbl/d.

Source: U.S. Energy Information Administration, based on Association of American Railroads.
Note: Crude oil and petroleum products rail shipments do not include ethanol. 

In 2009, crude oil accounted for 3% of the combined deliveries in the oil and petroleum products category tracked by AAR. The trade group estimates crude oil now accounts for almost 30% of the rail deliveries in this category, and says that crude oil is responsible for nearly all of the recent growth.

Much of the growth in shipping oil by rail is due to the rise in North Dakota's oil production, which has more than tripled in the last three years. North Dakota surpassed California in December 2011 to become the third biggest oil producing state and took over the number two spot from Alaska in March 2012.

Most crude oil is moved in the United States by pipeline. However, because of limited pipeline infrastructure in North Dakota's Bakken region, oil producing companies there rely on rail to move their barrels. Shipping oil by rail costs an average $10 per barrel to $15 per barrel nationwide, up to three times more expensive than the $5 per barrel it costs to move oil by pipeline, according to estimates from Wolfe Trahan, a New York City based research firm that focuses on freight transportation costs. Wolfe Trahan also notes that using rail tank cars allows oil producers to separate grades of crude more easily and ensure their purity than when different oils are mixed in a pipeline.

Argus Media reports that rail rates for unit trains moving Bakken oil to major refining centers on the Gulf Coast are about $12.75 per barrel to St. James, Louisiana and $12.25 per barrel to Port Arthur, Texas. The unit train delivery rate to New York Harbor is around $15 per barrel.
BNSF is the biggest railway mover of U.S. crude, transporting one-third of Bakken oil production alone with unit trains carrying up to 85,000 barrels of oil. The company's carloadings of crude oil and petroleum products increased 60% during the first six months of 2012.

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EIA: Rail Delivery of Crude Oil and Petroleum Products Rising

More U.S. crude oil is being shipped by rail, especially from North Dakota where a lack of pipelines has companies relying on tank cars to bring the state's soaring oil production to market. Pipelines remain the most popular transport option, carrying about two thirds of U.S. oil and petroleum products, but rail is on the rise.

The Association of American Railroads (AAR) tracks combined rail movements of oil and refined petroleum products. In the first ten months of 2011, nearly 300,000 tank cars transported U.S. oil and petroleum products, up 9.1% from the same period in 2010, according to AAR. The growth in petroleum by rail shipments is much stronger than the 1.8% increase for all railroad cargo combined during the same period.

While AAR does not issue separate data on crude oil and product shipments via rail, it notes that anecdotal evidence indicates most of the growth in the crude oil and petroleum products category is likely due to crude shipments. Based on different sources of rail traffic data, the trade group said shipments of crude oil and liquefied natural gas accounted for about 2% of all carloads in 2008, 3% in 2009, 7% in 2010, and about 11% so far in 2011. One carload holds 30,000 gallons of oil.

Tank cars are in strong demand in North Dakota, where oil production has soared from about 343,000 barrels per day (bbl/d) in January to a record high of about 464,000 bbl/d in September, according to North Dakota's Department of Minerals Resources (DMR), due to the increasing amount of crude oil extracted from rock in the Bakken Shale. DMR expects North Dakota will pass California during the second quarter of next year to become the third biggest oil-producing state. Burlington Northern Santa Fe (BNSF) and other railway companies are building or expanding terminals and adding tank cars to transport North Dakota's growing oil supplies to Gulf Coast refineries.

On November 7, the first crude oil unit train on the Bakken Oil Express, a newly constructed rail hub near Dickinson, North Dakota, departed via the BNSF Railway carrying its first shipment, 70,000 barrels of crude oil destined for St. James, Louisiana. The Bakken Oil Express receives Bakken-area crude oil by both truck and pipeline and has a current takeaway capacity of 100,000 bbl/d. The Bakken Oil Express is already planning a second phase of construction that would significantly expand its takeaway capacity to more than 250,000 bbl/d.

Deliveries of tank cars should total about 8,000 this year, up from only 4,839 last year, and then increase to 11,000 tank cars in 2012, according to Economic Planning Associates Inc., a consulting firm that tracks rail car assemblies. The firm does not have a breakdown of how many of the new tank cars will be devoted to carrying crude oil. Tank cars are also used for shipping ethanol, chemicals, fertilizer, and corn syrup.

Tank cars would also be useful in the major oil hub of Cushing, Oklahoma, where a glut of supply is depressing the key U.S. benchmark crude oil price. Pipelines bringing oil into Cushing from the north are nearly full and there is not enough pipeline infrastructure to move oil south out of the area to Gulf Coast refineries. The Surface Transportation Board (STB), the federal agency that resolves railroad rate and service disputes and reviews railroad mergers, told EIA that it saw little movement in recent months of crude oil out of Cushing by rail. Railway companies send the STB confidential information on their cargo shipments and where they are sending them.

Source: U.S. Energy Information Administration, based on the Association of American Railroads.
Note: Data are weekly average originations for each month, are not seasonally adjusted, and exclude U.S. operations of Canadian National Railways and Canadian Pacific Railway; one carload holds 30,000 gallons.