Trisha Marczak Railroads servicing the oil-rich region of North Dakota have seen the benefits of the boom, as lack of pipelines has industry resorted to transporting oil by train, creating a scenario that bills railroads as a manageable method of transporting the nation’s oil. “To the extent that we don’t approve pipelines, rail is going […]
Railroads servicing the oil-rich region of North Dakota have seen the benefits of the boom, as lack of pipelines has industry resorted to transporting oil by train, creating a scenario that bills railroads as a manageable method of transporting the nation’s oil.
“To the extent that we don’t approve pipelines, rail is going to become an even more critical solution. And that isn’t the most economical solution, nor is it the safest,” Darren Peers, managing director at NWQ Investment Management Co. told Bloomberg News.
The delay of the Keystone XL pipeline deal has prompted oil companies to turn to the rail industry — 75 percent of the business out of North Dakota’s oil fields has gone to Burlington Northern Santa Fe (BNSF), owned by Warren Buffett’s Berkshire Hathaway.
“Whatever people bring to us, we’re ready to haul,” BNSF spokeswoman Krista York-Wooley told Bloomberg News, adding that in the case of another Keystone failure, the company would continue on its current path.
A scenario in which the Keystone is replaced by rail wouldn’t satisfy concerns posed by environmentalists wary of oil transportation from Canada’s Alberta tar sand oil fields and North Dakota’s Bakken region.
“I think rail is now going to face the same kind of scrutiny that pipelines have come under,” Keith Stewart, a spokesperson for Greenpeace Canada told the Financial Post. “Rail used to be pretty inconsequential in terms of moving oil, but we’ve seen rapid growth in the last three years and they’re projecting massive growth.”
In March, a Canadian Pacific train derailed in northwestern Minnesota, spilling more than 30,000 gallons of crude oil into a rural field. In April, a train derailment in northern Ontario spilled more than 16,000 of crude oil — the second spill of the week in that region.
Room for rail
If money speaks, the railroad industry’s share in the oil business is promising.
The oil industry continues to invest in rail systems as a viable mode of transport. Faced with an abundance of oil that has outpaced current pipeline capabilities, North America’s leading pipeline operators are buying into rail depot projects.
From 2002 to 2012, the rail industry collectively transported 11.2 billions of crude oil. The Keystone XL Pipeline is expected to push 830,000 barrels a day.
Plains All American Pipeline LP (PAA) recently spent $1 billion on rail depot projects to transport oil from the Alberta tar sands and North Dakota’s Bakken oil fields to coastal refineries. Oil and refinery companies Devon Energy Corp. and Irving Oil Corp. have also said they’re willing to rely on rail to move oil.
And refineries that have invested are seeing the benefit of putting money into rail to transport domestic oil to its locations, rather than spending more on foreign sources.
“If a refiner in Philadelphia is paying $110 for Nigerian crude oil and could replace it with cheap Bakken crude, they’ll be willing to pay up to $1090.99 to replace that,” Tudor Pickering Holt and Co. Analyst Bradley Olsen told Bloomberg News.
“Oil that would have been moved by the Keystone XL is now going to shift to rail transportation,” Allison Ritter, spokesperson for the Department of Mineral Resources, told Human Events.
Railcar production is also at a high, according to analyst Steve Berger, who told Bloomberg that manufacturers are working to meet what’s expected to be an ever-growing demand among those in the oil industry and oil-related industries.
A lose-lose scenario
While oil companies are looking to any method of delivery at this point, environmental advocates aren’t convinced that it will continue to be smooth sailing for the rail and oil industries if the momentum keeps up.
“I think the industry has rose-colored glasses on if they think that they can ramp up by moving oil by rail, the way they’re talking about, without running into big opposition,” Stewart said.
Trains have historically generated nearly three times as many oil spills as seen with pipelines. Oil industry leaders know this, and are tapping into the argument that paints the pipeline as the best-case-scenario for those worried about potential Keystone XL oil spill disasters.
“One of the unintended consequences of delaying Keystone XL is that more oil has been getting to markets in Canada and the United States using rail, truck and water-borne tankers,” TransCanada spokesperson Shawn Howard told Bloomberg News. “None of those methods of transportation are as safe as moving it by pipelines.”
While pipelines spill less frequently, pipeline spills leaks are more substantial, generally releases four times the amount of oil, according to the Association of American Railroads.
The most recent pipeline spill in Mayflower, Ark. dumped more than 157,000 gallons of oil into a residential community. Having occurred more than a week ago, cleanup efforts are still underway.
Obama is expected to make a final decision on the Keystone pipeline this month.