NCPA - National Center for Policy Analysis

Dangers Aside, Railways Reshape Crude Market

September 23, 2014

The U.S. energy industry has had a dramatic change very recently in the way it ships crude oil. Once confined to transportation through pipelines, more and more crude oil is being transferred through railways.

Initially conceived of as a stopgap measure until pipelines could be constructed, and plagued by high-profile safety problems, crude by rail has nevertheless become a permanent part of the nation's energy infrastructure, according to the Wall Street Journal.

  • Today, 1.6 million barrels of oil, close to 20 percent of the total pumped in the U.S., are being shipped by rail per day.

  • Anything can run by through the railroad as long as terminals are built to load and unload the crude, which can cost $50 million for a large one.

  • Revenues for the railroads have increased from $25.8 million in 2008 to $2.15 billion in 2013.

Crude by rail has been accelerated by the fact that new oil fields in Texas, North Dakota, and Colorado can move their product to the highest bidder. And, despite the fact that using railways are a little more expensive than shipping via pipelines, rail lines are more flexible and can reach the highest bidders.

Further accelerating crude by rail is the fact that there have been large protests against the creation of new pipelines. The most visible example of this is the Keystone XL pipeline, which will connect crude oil from Canada to parts of the United States, has been stalled due to protesting. Instead, crude producers have switched to simply shipping by rail. Moreover, the cost of building a large terminal -- about $50 million -- is the cost of building only one mile of the Keystone Pipeline.

Critics of several communities claim that crude by rail is a hazard to public safety, as trains can spillover and dump oil leading to many environmental concerns. However, regulators have proposed new rules to require sturdier cars to carry crude as well as requiring lower speed limits on rail lines. Additionally, rail lines have the added benefit of not intruding on property rights of landowners that would otherwise be required to build pipelines.

Source: Wall Street Journal, "Dangers Aside, Railways Reshape Crude Market," September 21, 2014.

 

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