A series of articles in the RBN Energy blog predicts that new pipelines coming on line in 2017 will capture the remaining ND to Gulf crude oil traffic. Also a Canadian line to the east, with tanker port connections, will capture most of the East Coast refinery traffic in 2020. The only CBR that is safe is in the ND to Pacific Northwest lane, where the volume is too low to interest pipeline companies.
I think a lot of folks are of the opinion that Bakken traffic is a flash in the pan (no pun intended), for a variety of reasons. That pipeline facilities were not in place is one - the product had to move and rail was the best (and most flexible) option. Trucks were out - we’re already short of drivers, never mind suitable trailers in suitable quantities.
Another possibility is that Bakken would become uneconomical. Still another is that some other energy source would be found, or demand would drop.
Time will tell. The question of the moment becomes what will happen if both Bakken and coal drop off the map as sources of rail traffic.
Don’t forget, according to all accounts, what made the rails attractive to Bakken producers, besides the lack of pipelines, was that the rails did not require longterm contracts, as pipelines do, and that they go – right now – to East and West Coast refineries that can handle that lighter oil, as the Gulf Coast refineries, where the pipelines go now, do not.
I don’t see anything in there that has has changed importantly in recent months. In North Dakota, new pipelines are meeting landowner resistance. The Obama administration continues to sit on the famous Canadian pipeline. Rails continue to offer flexibility, altho at a higher price.
The only thing that has changed is a (temporarily) lower price for the crude.
I think the Bakken will be a longterm cash register for the rails.
I think rail has proved itself, atleast as a niche player, in cases where pipeline infrastructure has not developed yet or not available going to the right place. Also the RRs not requiring take-or-pay contracts certainly had appeal, especially to independent producers. However, the articles show that the Bakkken business has been going back to pipelines. There is lots of refining capacity for light crudes on the Gulf coast. The path to the east coast will be those two other Canadian pipeline projects, that only involve repurposing existing lines for crude transport in an eastward direction. The famous Keystone pipeline is mainly for heavy tar sand crude, and has very little extra capacity for Bakken crude. If it is ever built, it will be so late to the party, that it has no baring on the present discussion. I don’t doubt that there is some landowner resistance to pipelines, but the pipeliners are not adverse to using eminent domain. On the positive side, as the article pointed out, ther will still be a need for CBR
I have to give credit to a poster on Fred Frailey’s blog who made me aware of the RBN blog site a few years back. I have found them to be reliable and highly readable.
With coal use fading now (also carloadings) and oil shifting to pipelines, the rails had better start adapting soon. That means better service tailored to customer needs, not running long, heavy, slow freights with no schedules or flexibility in delivery.
You are out of touch with the rail service that is being provided. Changes that are being made are being made with customer knowledge and concurrence. Customers want low rates more than they want high speed delivery.
Yeah I would say I disagree with the original post as well. I don’t see the shift and clearly railroads and tank car builders researched this issue heavily before being burned on another spending program that will come to naught in less than 10 years. I read somewhere that the tank car delivery gives the oil producers flexibility in destination as well as mixing that pipelines do not as well as these particular brands of crude being easier to transport by tank car because their viscosity is thicker…than by pipeline. Pretty sure the Oil Industry would have held off on investment as well if this was the case.
So I would throw the BS flag on the original post.
As for the downturn in Coal shipments, it will be reversed once we switch out the current occupant of the White House. Some of our economy now is artificial and I think once we see a change in political administration and idealogy we will revert back to the real economy and our sub par GDP growth rates will disappear as well.
I’m talking about new customers to replace current and prospective lost business. It requires some fundamental changes. High speed? No. Just not speeds similar to 100 years ago if you want new business. On your railroad (CSX?) for the week ending 8/7/15, overall speed was 19.9 mph. Intermodal was a blazing 26.1 mph. Terminal dwell time overall as 25.5 hours.
By way of comparison, the UPRR manages overall speed of 25.4 mph (25% faster) and intermodal 31.1 mph, but has a longer dwell time average of 28.4 hours.
Compare that to some European intermodal services, averaging speeds of 130-160 kmh (81-99 mph) or even higher.
Many of the arguements you give would cause one to think that Bakken crude should continue to ride the rails, however, if you relook at the first chart in the first link, you will see that rail’s market share of th Bakken crude hauling business went from 75% to 50% over the last couple of years, and the trend is continuing in the wrong direction. (Note: the viscosity problem is with tar sands, not Bakken) Some of the companies still planning on new tank cars serve refineries on the West Coast, like Tesoro, where CBR is still expected to continue.
The 2 big pipeline hauls to the east are already built, but are to be repurposed. Enbridge East would change the flow direction on an existing oil PL (IIRC they are re-reversing it back to its original flow direction) so it would be a no-brainer. The TransCanada project would convert a natural gas line. This conversion would have to jump thru some regulatory hoops. These lines would connect to Atlantic ports. Because the trip to US East Coast refineries would be international, they could use low cost foriegn flagged tankers. There would also be some new connecting pipelines out of ND. Pipelines continue to be built out of the Bakken. Pipeliners hire environmental consultants that are smart enough to steer around legit environmental concerns, and I have not heard of one domestic pipeline yet that has been killed because of environmentalist. (remember Keystone is an international PL, which makes it a political football)
Because as admitted in the article several items are happening currently namely:
Decrease in per barrel oil price.
Oil production leveling off (namely because of #1 and less drilling).
Differential between selling price and cost to produce making transportation costs more relevant to the total equation.
I am not a big fan of “if current trends continue” scenarios. Especially when it concerns the Middle East and Oil Production.
I personally do not believe that the largest Oil Criminal Enterprise on the face of the Earth (Russian Federation) will allow the above three trends to continue via the current geopolitical situation. They will once again find a way to spike Oil Prices for their own benefit. Secondly, it’s been reported repeatedly that Saudi Arabia’s over production and selling of Oil while having an impact on our production here in the United States is probably not going to have a long-term impact on our growth in Oil Production even though it is having short term impacts on it. Also, Economist reports that the Saudi strategy is unsustainable for more than 2-3 more years. Last but not least Iran’s Oil back on the market. Will it have an impact? Unfortunately not immediately as many of Iran’s Oil fields like Iraq’s prior to the last war under the sanctions regime have fallen into bad repair and need a few years at least to recover their pre-sanctions regime production levels. I have my doubts that Iran will be able to hold it together internally for another 5-7 years if the Iran Nuke deal goes through and further agreements pass…I think on the civilian pa
Given the choice of which opinion seems to have more expert research to support it as well as his first hand experience in the field, I would have to say my bet would be on that of Midland Mike. It tends to corroborate the opinions of oil investment experts, foreign policy gurus and a senior executive relative at the upstream side of Exxon-Mobil.
To answer your point (2.) first: in the 2 years that rail has been losing market share, production was rising during most of that period and only leveled off recently.
Points (1.) and (3.) so far relate largely to crude going to the Gulf and midwest, as that is where all the present pipelines go. As mentioned in the second link, the crude still going to the East Coast refineries apparently is to meet commitments. And as he points out, once the first Canadian pipeline reaches an Atlantic port, and a US East Coast refinery takes delivery of a load that costs less than half of CBR to ship, then other East Coast refineries will be compelled to follow to stay competetive. At that point it is about shipping costs, not world oil prices.