NCPA - National Center for Policy Analysis

Pipeline-Capacity Squeeze Reroutes Crude Oil

September 5, 2013

More crude oil is moving around the United States on trucks, barges and trains than at any point since the government began keeping records in 1981, as the energy industry devises ways to get around a pipeline-capacity shortage to take petroleum from new wells to refineries, says the Wall Street Journal.

The improvised approach is creating opportunities for transportation companies even as it strains roads and regulators. And it is a precursor to what may be a larger change: the construction of more than $40 billion in oil pipelines now under way or planned for the next few years, according to energy adviser Wood Mackenzie.

  • U.S. oil production has reached its highest level in two decades, while imports have fallen dramatically.
  • A system built to import oil and deliver it to coastal refineries has become ill-equipped to handle rising production in Texas, North Dakota and Canada's Alberta province.

With oil prices persistently above $100 a barrel, companies drilling new wells don't want to forgo revenue while they wait years for new pipelines. That leaves them with trucks, trains and barges to move an increasing amount of crude.

  • Oil delivered to refineries by trucks grew 38 percent from 2011 to 2012, according to the U.S. Energy Information Administration, while crude on barges grew 53 percent and rail deliveries quadrupled.
  • Although alternatives are growing rapidly, pipelines and oceangoing tankers remain the primary method for delivering crude to refineries.

The American Association of Railroads says it is prepared for growing crude shipments because it has long carried hazardous cargoes. In 2008, major U.S. railroads carried 9,500 carloads of crude, the association says, and are on pace this year to carry 389,000. Most industry analysts believe that while crude on trains will last, truck and barge traffic will decline once new pipelines come into service.

Source: Russell Gold, "Pipeline-Capacity Squeeze Reroutes Crude Oil," Wall Street Journal, August 26, 2013.


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