Bloomberg published an article regarding the new frenzy of shipping domestic crude, particularly tight oil from shales, by rail rather than pipeline. This decision by shale operators is interesting for various reasons but most especially for the economics behind it. While industry touts shipping by rail as their latest great idea, there is, of course, another possibility as to why shipping by rail rather than pipeline makes sense. And it has more to do with unprofitability than great opportunity.
According to Bloomberg:
“A group of oil and gas pipeline operators led by Plains All American Pipeline LP (PAA) announced plans just in the past three months to spend about $1 billion on rail depot projects to help move more crude from inland fields to refineries on the coasts.”
“Oil pipeline operators’ net income soared to an all-time high of $6.1 billion, a 33.3% increase from 2010 achieved on the back of a nearly 12% increase in operating revenues.”
“Oneok cancelled its Bakken Oil Express plans…citing insufficient shipper interest.”
Now record profits are being made on oil pipeline assets in the U.S. and industry touts the Bakken as one of the two hottest oil shale plays in the US and yet there is “insufficient shipper interest”.
“Sending Bakken oil through a pipeline to U.S. Midwest markets costs about a third of the $15 a barrel expense of carrying it by train to the East Coast.”
Railroad tank car via shutterstock. Reproduced at Resilience.org with permission.