the US fracking boom
Anew oil boom is currently sweeping the west of the United States following economic improvements to the process of hydraulic fracturing, or fracking, and the government’s desire to increase its energy independence. With oil and gas companies lining up to get their share, the rush to extract oil is also proving to be hugely beneficial to North American railways, as Kevin Smith discovers.
ahead. But they are at the mercy of landowners in the region who demand high premiums to build on their land, the harsh winter weather which delays construction, and a year-long permit application process. The energy market research firm IIR
Energy estimates that $US 10bn will be spent on pipelines this year, yet the North Dakota Pipeline Authority (NDPA) predicts that crude oil production will exceed pipeline capacity in the region until at least 2015, with current pipelines around 300,000bopd short of capacity. This lack of capacity has led to pipeline bottlenecks and an abundance of oil at the mid-continent meeting point in Cushing, Oklahoma. The price of Bakken crude has consequently fallen in comparison with that sourced from other parts of North America. As a result oil companies have turned
to rail as a way of both meeting demand and getting a better price for their product. Despite the $US 10-15 cost of shipping a single barrel by rail compared with $US 5 by pipeline, rail’s flexibility provides oil companies with a greater choice of potential customers. Coastal refineries can pay a premium
of up to a $US 30 on a single barrel of Bakken crude oil shipped by rail which is still cheaper than imported oil, and oil companies have moved quickly to meet this demand. In summer 2012 Tesoro began shipping 30,000bopd to a refinery at Anacortes, Washington, while Delta Airlines began receiving shipments of Bakken crude at a refinery in Philadelphia in February. Other refineries and ports in California, Oregon, Washington, Texas, New York, Pennsylvania, and Louisiana, which are difficult to reach by pipeline, are already being served, or will be soon.
Class 1s
The increase in importance of oil shipments to the Class 1 railways is reflected in quarterly volumes from the past few years. The seven Class 1s transported around
10,000 carloads of crude oil in each quarter of 2010, but this has ballooned since to around 27,000 by the end of 2011, over 50,000 by the middle of 2012, and 97,000 in the first quarter of 2013, a 166% increase year-on-year. CN says it is committed to doubling its crude oil volumes in 2013 following a 19%
increase in volumes and 13% in revenues during the final quarter of 2012, while Kansas City Southern reported a quadrupling of its crude volumes during the same period. Union Pacific (UP) carried 25,000 carloads in 2011, 140,000 in 2012, and volumes increased by 107% in the first quarter of 2013 year-on-year. UP also recently announced that it is teaming up with CP to transport Canadian crude to California. NDPAestimates that rail carried 60%
of oil exports from the Williston Basin in 2012, up from 6% in 2010. This increased to 84% in May 2013, although fell back to 70% in June, according to energy intelligence group Genscape, following an increase in prices at Cushing. The impact of July’s Lac-Mégantic derailment and explosion which killed 47 people has raised questions about the long-term viability of transporting crude oil by rail. However, analysts expect crude by rail to maintain its strong growth (see panel.) Confidence in the long-term is similarly reflected in infrastructure investments. BNSF is the most prominent railway in the Bakken region, currently operating seven to eight trains per day which are carrying
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Photo: Chris Guss
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