26.1.12

THE KEYSTONE CONTROVERSY ISN'T THE ONLY IMPEDIMENT.

It takes a long time to build a pipeline, and there apparently are constraints on their carrying capacity (as well as suffering from fixed endpoints).  In the short run, the railroads will benefit.  The short run, however, lasts a long time.
By 2013, [North Dakota] officials expect to drillers to pump 750,000 barrels per day from the stubbornly hard rock formations and to surpass 1 million by 2015. “Pipelines are by far the safest and most economically efficient way to transport oil, but we are left with a limited number of options if pipelines are off the table,” Tony Clark, chairman of the North Dakota Public Service Commission, told the AP. “Once the oil is flowing, it has to go somewhere.”

Actually, if not by pipeline, producers have but one option: a train. A modern railroad tank car holds 700 or more barrels of crude oil. So a 100-car train can take 70,000 or so barrels of oil wherever the customer wants it to go. Presently, railroads estimate they are loading about 25 percent of North Dakota’s crude oil, the rest going by existing pipelines. But pipeline capacity cannot ramp up quickly. Therefore, for the next couple of years, as production increases at roughly the rate of 10,000 barrels or more per month, you either get the oil out of the state by rail or shut down your pump jacks, and that second option is really not in the cards.

Just do the math. One-fourth of 500,000 barrels a day, the current production, comes to almost two unit trains a day, which is about what BNSF Railway and Canadian Pacific Railway are carrying. By the end of this year, make that three or four trains per day, and in 2013, five or six or seven. At the moment, BNSF has six loading facilities for crude oil in North Dakota, CP two (but CP is also active in Saskatchewan). By 2013, BNSF’s loading capacity will expand to nine facilities in the state, and CP’s to three. So what I thought was overbuilding of these loading docks and associated trackage turns out not to be the case at all.
Perhaps the Midland Continental Railroad, projected to connect Winnipeg to Galveston, but never getting  out of North Dakota, was a hundred years too early.  On the other hand, modern train operating practices favor the concentration of traffic on heavy trains on densely-trafficked lines.  And the upside potential is great.
By the time the XL is built, presuming that it is, it will have room for just one-tenth of North Dakota’s oil output. Other pipelines will be proposed and built into the state, but the pipeline network is aimed primarily at Oklahoma and Texas, whereas prices are higher on the east and west coasts and places in between.

Hess Corp., one of the biggest producers in North Dakota, has begun to run unit oil trains from its loadout in Tioga, N.D., to an idle Sunoco refinery near Camden, N.J. via BNSF and Norfolk Southern. The facility has oil storage and pipeline access, presumably to Hess's U.S. refinery in Woodbridge, N.J. It’s business like this that railroads need to nurture, through pricing that is as competitive to pipelines as possible and with service that is as dependable as a ticking clock.
The German Navy spurred development of the oil pipeline network of the United States in the 1940s, although the war was over before many of those lines were completed.  The railroads picked up the slack then, and they'll pick them up now.

Cheaper domestically produced gasoline, however, works against inducing people to switch to riding passenger trains, even augmented to 90 or 110 mph.  More tank trains, whether containing prairie crude or ethanol, are more reason for the freight railroads to negotiate more aggressively with Amtrak and with regional Passenger Rail authorities over track space.

1 comment:

David said...

I've seen some pretty aggressive comments from various RR executives to the effect that they can haul the oil for an incremental cost of only a few $/bbl compared with pipelines. otoh, loading/unloading a tank train has to be a fairly labor-intensive process, and at least some oil refineries are going to need considerable trackwork done to be able to handle the trains.

Some commentary by a fairly knowledgeable-sounding individual in the thread here:

http://sistertoldjah.com/archives/2012/01/24/keystone-pipeline-rejection-a-product-of-crony-capitalism/