WhiteRiverProductions RAILROAD NEWS AND COMMENTARY FROM WASHINGTON BY WES VERNON Has the Oil Boom Gone Bust?


THE UNCERTAINTIES OF RAILROADING have in- fused most veterans of the business with a correct appreciation of the standard advice — “always expect the unexpected” (or perhaps “what can possibly go wrong?”). As in many other large industries, that is where the CEO earns his or her pay. That goes seemingly double for the relationship between the rail and rail-related entities. As a “golden goose,” the Bakken oil shale,


which has showered a gusher of oil revenue on the railroads, now has stirred concerns — well-founded or not — that the freight carri- ers may be hearing a “last call” for a party that is almost over; maybe, it is suggested, within a couple or three years.


What Could Go Wrong?


The first half of this year has seen a slide in crude by rail (CBR) shipments from North Dakota to east and west coast destinations. Not necessarily always a bad thing, given that oil producers, despite their best efforts, have not been able to deal with a decline in oil prices. The “glut:” Some oil analysts believe a lowering of prices is not keeping pace with the requirement to maintain charges at a lev- el that enables the industry to operate in a feasible balanced manner. It is not that there has been insufficient production of oil. The problem is the cut in production is not steep enough. An oil “glut” can and does create problems of its own. A production record that took a slip from 9.7


million barrels a day in March to 9.5 million barrels in May (according to federal data) just isn’t “good enough,” according to the thrust of a report in the Wall Street Journal. No, there should be a larger slippage, it seems. “We need to cut a whole lot more,” com-


plains consultant Jamie Webster in the re- port, which notes an industry consensus that American oil pumpers will need to slash an- other half million barrels a day to stem the oil oversupply. Although obviously this will affect the rail-


roads, it is but one of several factors in an ev- er-changing and, at times, confusing energy picture. It creates boomtowns along the rails. For the black gold, it means, for now, what’s good for the trains also boosts employment on the railroads. But it can present an econom- ic problem for oil in the form of lower prices, which leads to Mr. Webster’s call for deeper cuts in oil production. From trains to pipelines? Enter yet


another factor: With all the changes taking place in the energy/rail relationship, one that seems to be taking center stage right now is a prospect of oil pipelines replacing oil tanker cars on trains in more places. Could this mean the diminution of the link between railroads and the fracking heyday of the Bakken shale era, primarily in the last half dozen or so years? Are we approaching “the end of the line,” of CBR Bakken ship- ments to the west coast? The consultancy RBN Energy poses that question in a head- line of a recent report. The oil/rail quandary: For a number of reasons, the RBN cites differences between


west coast pipelines of the future and those on the east coast. (RBN, we should mention here, is a company that “connect[s] people who need energy market information with those that provide that information.”) RBN informs us, “The end of the line for


east coast [CBR] is likely to come when a pipeline is built to that market that competes directly with CBR. The most likely candidate is the Trans-Canada East pipeline — expect- ed online by 2020 (assuming it receives neces- sary permits).” So the railroads are faced with some de-


clines of oil shipments and also contending with perceived threats of more competition from oil pipelines. “Deserted” N.D. “boomtowns?” Thus


the familiar race between supply and demand, with a result that, according to RBN Energy, “All Bakken production could be transported to market by pipeline — potentially leaving North Dakota rail terminals deserted.” “Of course,” RBN adds, “if crude production


in North Dakota had continued at the same breakneck pace in 2015 and 2016 as it did in 2013 and 2014, even with all these pipe- line additions, Bakken shippers would still be dependent on rail to get at least some of their barrels to market. But lower crude pric- es and cutbacks in new drilling over the past year have reduced expectations for increased crude production, and opened up the possibil- ity that pipelines could take the place of rail as early as sometime in 2017.” One would require something more pre-


cise than the benefit of the proverbial crystal ball to predict how that will turn out. But like the making of sausage (or some other well-worn metaphor that escapes me at the moment), the process is not likely to be a welcome sight. So where do we stand? Enter the rail-


road analyst Anthony (Tony) Hatch. Hatch was asked for an estimate as to how he be- lieves this three-way (oil, railroads, pipelines) battle would affect the railroads which have built a huge crude oil business increase in the last few years. Added to the steady down- turn in the coal industry (once the staple of the railroads), does the possible switch (by a good part of the oil industry) to the pipelines threaten rail fortunes in terms of market share, jobs, and the bottom line and in other ways? And can any educated estimate on this be quantified? Mr. Hatch’s straight to the point response


(by e-mail): “Not much. They haven’t built much themselves (their customers did). It would in worst case — be the absence of a hoped-for positive. . .” And speaking of rail “finances,” a report on American rail volume in the first 32 weeks of 2015 showed a slightly declining 0.5 percent compared to last year, according to data from the Association of American Railroads.


Transit Hell?


If you’re looking for a depressing (but real- istic) picture of “commuter hell,” then you may choose to reference a recent column by Tom Moran in the Newark Star-Led- ger. The piece refers to a “good scare” that


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