Drilling and crude oil production in the Bakken has developed much faster than the gathering and pipeline infrastructure necessary to move the barrels. Consequently, over the past two years rail has become a significant feature of crude oil transportation in the region. According to the North Dakota Pipeline Authority, the capacity of rail terminals in the state was about 300,000 b/d at the end of 2011, and will reach 750,000 b/d this year. But there is a catch. The rail lines in North Dakota were not built for this kind of traffic.
In rail parlance, there are main lines and branch lines. The main lines are the superhighways designed for heavy traffic. The branch lines are the back roads. Most of the branch lines in North Dakota were built to support agriculture -- to carry fertilizer at the beginning of the growing season and the grain harvest at the end. It is these branch lines that are now being used to transport crude cars. The traffic is heavy and continuous, resulting in much more wear and tear on the lines. Then there were the floods last year and more weather related issues.
Crude oil is rated as a hazardous material. To insure that the oil can be moved safely, the railroads must either spend significant investment dollars to upgrade the lines. Or slow the maximum allowable speed on the lines. With limited investment dollars, frequently the only alternative available to the railroads is to slow the lines down.
As an example, Canadian Pacific had one branch line that was rated at only 10 MPH. A huge investment was needed to move the speed limit up to 35 MPH.
The slowing of branch line speeds is having a significant impact on the volume of Bakken crude that can be moved by rail. First, because of the rail slowdown itself. And second because the slower speeds tie up rail cars longer. So more rail cars are needed for the same volume of crude.