Oil pipelines in North Dakota are overwhelmed by the surge in output, and moreover, the pipeline network runs primarily north and south, centering on Cushing, Okla., where benchmark prices for U.S. crude oil are commonly set. However, shale oil production has contributed to a glut of supply in the Cushing market, creating a gap, currently $16 per barrel, in the price of oil there versus on international markets. True, it costs $5 to $10 a barrel more to transport oil by rail rather than by pipeline. But the price differential for crude oil is an incentive for refiners dependent upon imported oil to buy the easy-to-process light sweet crude from North Dakota that will yield gasoline commanding the same price as products that come from Middle East crude. No matter where the refinery, rail gets it there directly.In the Second World War, the unit trains came into being as a response to coastal tankers, silhouetted against coastal cities where the boardwalks weren't yet ready to recognize that there was a war on, becoming an additional source of illumination thanks to the efforts of U-boat skippers who understood, all too well, that there was a war on.
So we’re beginning to see the unthinkable: unit trains of crude oil. Rail shipments of petroleum products are running 1,300 cars per week ahead of last year’s pace, and most of the increase is believed to be crude oil. BNSF is hauling oil from North Dakota to Stroud, Okla., near Cushing on Watco-owned Stillwater Central Railroad, and to refineries in Houston, St. James, La., New Mexico, California and the Pacific Northwest. Denis Smith, BNSF’s vice president for industrial products marketing, says oil loadings are currently divided about 50-50 between scheduled manifest freight trains and unit trains, but are being driven by the railroad toward unit trains as facilities to load huge volumes of oil are constructed. Right now BNSF can load crude from six locations in North Dakota. “When all is said and done,” says Smith, “we’ll have up to a dozen crude oil terminals.”
At the moment, the railroads of the Empty Quarter are busy with business, as the development of these wells calls for the shipment of a couple of trains a day worth of oil country goods, plus the movement of the tank cars empty inward and loaded outward.
If the website goes inactive over the next couple of weeks or months, it's because the Superintendent has become engrossed in yet another research anomaly: can a train hauling North Dakota crude to refineries around the Great Lakes deliver the oil at a lower price than a pipeline whose tariffs are f.o.b. destination, delivered from Cushing, Oklahoma. Where?