The Economics Behind Crude by Rail

Rail was never meant to replace pipelines as a means to transport oil. The problem was that oil was being discovered where no pipelines existed.

"There are nearly 140,000 miles of railroad in the United States, while the crude oil pipeline system is just 57,000 miles long, according to federal data. For a company with crude to transport, railroads can be the simpler solution if a link to a pipeline is not already in place, said Sandy Fielden, the director of energy analytics for RBN Energy, a consulting firm," writes Texas Tribune reporter, Aman Batheja.

Batheja illustrates the ecomic attractiveness of moving crude-by-rail (CBR) at a new Texas rail terminal that opened in December. BNSF Railway transports oil produced in an area of Colorado where no pipelines exist to the Jefferson Transload Railport where it is off-loaded, transferred to barges and transported "down the Neches River to a nearby refinery."

The Port of Beaumont and Jefferson Energy developed the Jefferson Transload Railport as a public-private partnership, a Jefferson Energy spokesman, Mark Viator, said. Money for the project included $47 million borrowed through a federal bond program for areas affected by Hurricane Ike in 2008. While the terminal is currently receiving crude oil trains that have 60 to 80 cars, it is equipped to handle trains of up to 120 cars and to drain every car simultaneously, Mr. Viator said.

“If you’re going to build a 1,000-mile pipeline, you have to have some serious investment,” Mr. Fielden said. “But just to build a rail terminal in West Texas, depending on how big it is, is not such a huge investment.”

It was the massive investment that deterred Southern California refineries from financing the Freedom Pipeline, instead opting to "ship crude oil via rail from the Bakken oil field in North Dakota", as we noted last year.

One of the most serious concerns of moving massive amounts of oil, particularly form the Bakken formation, is undoutedly safety as well as oil spillage.

“These things are firebombs on rail,” said Tom Smith, who is known as “Smitty,” the Texas director of Public Citizen, a consumer advocacy group. “They cross in the middle of urban areas and literally bisect small towns all over Texas, bringing the danger to our most populated areas.”

Smitty is not alone in his categorization of oil trains from the Bakken fields and the risk they pose to communities aong the rail routes.

"Senator Charles E. Schumer (D-NY)... compared the (rail) industry’s use of outdated tank cars to 'a ticking time bomb' and urged federal regulators to quickly retire these older cars...," as we noted in a post about the Port of Albany, N.Y. last month.