The above reference blog series contains many posts offing a grounding in Energy economics. Many of those concerning the Bakken also involve the railroads including this one;
It sounds like pipeline capacity and oil markets are adjusting themselves so that pipelines may soon capture much of the Bakken crude, at least to the Gulf coast. Rail hauling of mid-west crude might end up as a niche market to east and west coast refineries.
From the blog: “…( pipeline capacity) logjam at Cushing OK that is preventing rising Canadian and Bakken crude production from reaching Gulf Coast refineries.”
It looks like the opportunity would be there to run oil trains from Cushing, OK pipeline terminals to Gulf Coast refineries.
That would be a very nice niche. From what I’ve read, from the beginning the railroads thought things would settle out with about 25% of the Bakken crude moving by rail long term.
They’ll take it. Beats a sharp stick in the eye.
The author is looking at things from the Oil Logistics point of view, here is looking at the situation from the railroads point of view.
Estimated June 2012 Oil production - 660 Mb/d
Pipeline Capacity 360 Mb/d
Available for railroads 200 Mb/d
Situation at the End of 2012 720 Mb/d - maybe more
Pipeline Capacity 435 Mb/d
Available to the railroads 185 Mb/d
That’s not a big decrease, and with the Bakken to WTI discount decreasing the Producing companies might be incentivized to increase production faster.It is the Terminal Companies who in many cases are also the Pipeline companies who likely have overbuilt.
That blog is outstanding. It describes crude oil and transportation economics in a simple yet detailed manner. I linked back to several of the other blogs and not only read about the rail economics, but also the pricing of crude oil.
As mentioned, the pipeline capacity issues at Cushing and other points have made rail transport viable for several movements, including St. James, La and Albany, NY. In fact, the opening of Bakken Oil and the price differential is allowing East Coast refiners to compete. Global in Albany is doubling their terminal capacity in anticipation of movements of higher volumes.
The railroads will make the easy money early on and then find the margins will evaporate as pipelines increase their capacity. However, it appears the author is confident that the railroads mobile capacity will allow them to service numerous destinations.
Exciting times for North Dakota, the oil producers, pipelines and railroads.
Ed
“+1”. Thanks for sharing that link in the Original Post, beaulieu - lots of good stuff there to read later on, when I have more time . . . .