Rail Delivery Continues To Increase, But Pace Slows

September 2013, Vol. 240 No. 9

With U.S. crude oil production at the highest level in two decades, outstripping pipeline capacity, the U.S. is relying more on railroads to move its new crude oil to refineries and storage centers. The amount of crude oil and refined petroleum products transported by rail totaled close to 356,000 carloads during the first half of 2013, up 48% from the same period in 2012, according to the Association of American Railroads (AAR).

U.S. weekly car-loadings of crude oil and petroleum products averaged nearly 13,700 rail tankers during the January-June 2013 period. With one rail carload holding about 700 barrels, the amount of crude oil and petroleum products shipped by rail was equal to 1.37 MMbpd during the first half of 2013, up from 927,000 bpd during the first six months of last year.

AAR data does not differentiate between crude oil and petroleum products, but it is generally believed that most of the volume being moved in the 2006-10 period was petroleum products and most of the increase since then has been crude oil. Crude oil accounts for about half of those 2013 daily volumes, according to AAR.

The roughly 700,000 bpd of crude oil, which includes both imported and domestic crude oil, moved by rail compares with the 7.2 MMbbl of crude oil the U.S. produces daily, based on the latest 2013 monthly output numbers from the U.S. Energy Information Administration.

The jump in crude oil production from North Dakota, where there is not enough pipeline capacity to move supplies, accounts for a large share of the increased deliveries of oil by rail. North Dakota is the second-largest oil-producing state after Texas, as advanced drilling technology has unlocked millions of barrels of tight oil in the Bakken Shale formation.

More Bakken crude oil moving to market by rail has helped narrow the difference between the spot prices for Bakken crude oil and international benchmark Brent crude oil in recent months to its smallest gap – less than $5 per barrel – in more than 18 months. The narrower spread reduces the incentive to ship oil to coastal refineries. This development, along with the lack of railcars (some estimates cite a 60,000-car backlog) may explain the slower growth shown in 2013 carload data.

Petroleum product rail shipments do not include ethanol. Conversion of rail carloads per week into million barrels per day includes an assumption of 700 bbl per rail carload.

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