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Freight Rail: Year End High Note

NORTH DAKOTA IS NUMBER FOURin oil production by state, and freight rail — mainly BNSF Railway— is scooping up its share of the pie. Petroleum engineers have injected vast amounts of water into rock, in turn releas- ing marketable amounts of oil and natural gas. This oil shale methodology, deployed in the North Dakota’s Bakken Formation oil field, is called “hydraulic fracking.” BNSF, as the dominant freight rail player


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in the area, “continues to see a bright future for growth opportunities in the Williston Basin,” according to a statement issued by the Class I carrier’s marketing VP. The opti- mism is, to say the least, well-placed. Rail terminals — newly built or under construc- tion at year’s end — were on course to reach a capacity of 300,000 barrels a day by the end of 2011, 750,000 barrels a day by the end of 2012, and more than 800,000 barrels a day by 2013. The process, according to some estimates, will be hastened by the Obama administration’s postponed decision on approving the Keystone Pipeline from Canada. Combining these factors, some in- dustry observers see BNSF as shipping up to ten times as much oil as it does already.

More oil, more trains Meanwhile in Oklahoma, a task force com- missioned by Governor Mary Fallin has rec- ommended upgrading the state’s rail infra- structure to meet the increasing requirements for oil transport. While pipelines are the most popular transport op- tion, the president of Enid, Okla.-based Con- tinental Resources, Inc., observes that “all the pipes are full now.” Moreover, rail is more flexible. His company is using rail to move about 35 percent of the oil it produces in North Dakota’s Bakken deposits. Currently, the Oklahoma Department of Transportation says eight short-line rail- roads are moving oil in the state. Johnson Bridgewater, the agency’s rail division pro- gram manager says the Sooner state is “probably standing on the verge of becoming the second biggest movement-of-oil-by-rail state,” and is seeking to enlarge its rail ca- pacity to meet the demand.

But Will This Last? There are, as has been noted before in this space, some considerable antipathy to coal — much of the flak generated by environmental groups. But coal still generates half the na- tion’s electricity. And as BNSF CEO Matt Rose puts it, “We could eliminate all of our coal assets in this country, and it would be a disaster. We’re going to need coal for a long time.” Much of the rail coal traffic heads for the ports where it is loaded on ships for over- seas destinations, most notably to China. Speaking of shipments to Asia, BNSF is upgrading yards to handle an upsurge of nearly 30 per cent in transporting specialty grains to that part of the world. That is lead- ing to a double economic advantage. Organ- ic or genetically-modified soybeans are now being shipped to Asia in containers that had

previously sailed back empty across the Pa- cific after bringing other goods to the U.S.

And KCS Kansas City Southern (KCS) “has shown the strongest volume of growth of any large” freight or Class I carrier, according to Matthew Troy of Susquehanna Group. “It’s a perfect storm,” he tells Investors Business Daily. “All their long-term strategic initia- tives are hitting stride at the same time.” Those initiatives include sales and profits up by double digits in six consecutive quar- ters, automotive revenue by 58 per cent in the latest quarter, traffic up steadily in 2010 and the first half of 2011. South of the border, the carrier is Kansas

City Southern de Mexico, with the most di- rect rail route between Mexico City and Laredo, Texas. Another growth sector is railroad’s exclusive rail service to the Mexi- can Port of Lazaro Cardenas, the fastest- growing container port in North America. The Mexican government is so impressed

that, at our deadline, it was evaluating bids for a second terminal concession.

PTC — Uncertainty. American freight and commuter railroads are working feverishly to meet the 2015 deadline for PTC (Positive Train Control), aimed at making accidents less likely. Some are hoping for an extension of the deadline. But not knowing whether one will be grant- ed, the railroads have no choice but to con- tinue to pursue the complex systems at an accelerated pace. Amtrak has an advantage in that its PTC installation is scheduled to be completed by the end of 2012 on lines actually owned by the company. Much of the required PTC in- frastructure for Amtrak has been on opera- tion for more than ten years on the NEC.

DOT Priorities President Obama has signed into a law a huge spending package that includes an FY 2012 carve-out for the Department of Trans- portation. On surface transportation, the package lowers highway spending by nearly $2 billion. The agreement contains no fund- ing for high-speed rail and other intercity passenger rail grants, though Amtrak will receive $1.439 billion, down about $64 mil- lion from last fiscal year. House Speaker John Boehner released

the general outlines for a GOP (House ma- jority) vision for surface transportation over the next five years. Funding levels were not specified. The speaker said the measure “provides responsible infrastructure fund- ing and links new energy revenue produc- tion of American energy to the Highway Trust Fund.” Congressman Nick Rahall, West Virginia Democrat and ranking member of the House transportation committee, criticized the lack of specifics in the Boehner plan, but praised the GOP for abandoning previous proposals to cut highway and transit fund- ing by 34 per cent.


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