Analysis: Rails, not pipes, may tame twisted oil market
Joshua Schneyer
U.S. crude oil shipments by railroad could help to end gaping price distortions in world oil markets faster than most traders have been expecting.
Rail shipments of crude from the landlocked and oversupplied Midwest to refiners in the Gulf Coast appear set to surge next year, to nearly double the volume now flowing in congested pipelines between the regions.
The shipments, which were rare until this year, have already grown to around 100,000 barrels per day (bpd) in recent months, industry sources told Reuters. Two rail terminals in St. James, Louisiana are receiving much of the crude, while other sites like Houston are taking additional crude.
The daily cargoes between the Midwest (PADD 2) and the Gulf Coast (PADD 3) could triple to 300,000 bpd by late 2012, industry sources said. Logistics firms unveiled plans for several new crude-by-rail terminals over the last four months.
Since the Department of Energy does not track crude-by-rail, there’s no official data on how much is moving.
But logistics firms say volumes are growing fast, a trend that could slash discounts of $24 a barrel on U.S. oil futures relative to oil in the Gulf Coast or Europe.
Delays in southbound pipeline construction and insufficient existing capacity have resulted in midwestern crude gluts, the main reason cited by oil traders for the unusual discounts. Railroads are emerging as a viable option for inland oil producers to get crude to coastal areas and maximize profits. (Reuters)
Pipelines, once in place, are the most efficient method of moving most liquids long distances. They operate almost unseen and with limited impact. I love trains and we need them for most bulk materials and some liquids but large volumes of hydrocarbons, particularly crude oil should be shipped by pipeline. As a short term solution to over come bottlenecks rail movement is fine but the long term solution has to be pipelines.
I second, rail transport is only done to get around the fact that getting new pipelines built is near-impossible.