News flash! ---Rail transportation has become a very big deal in the business of transporting crude oil, NGLs and petroleum products!!----The whole world does not revolve around pipelines! Yup, the media has discovered that hydrocarbons can ride the rails. Never mind that liquid hydrocarbons have been moving in tank cars for 150 years. The news is that rail is having a market impact like never before. And that is because there has been a strategic shift in the way rail transportation is being used by the petroleum industry. In Part II of our series we’ll dissect the strategies being used and discuss how things are evolving in the world of tank cars.
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In Part I, A Tank Car Train for Hire – NGLs on the Rails we focused on the Class I rail network, the history of petroleum transportation by rail, high pressure tank cars used for NGLs, the difference between unit trains and manifest trains, and the recent increases in rail activity for liquid hydrocarbons. In short, the average number of weekly petroleum and product carloads has increased to 17,000 after languishing in the 9,000-11,000 range for many years. So the use of rail by the petroleum segment is up about 70%. For the most part the increase is being driven by crude oil moving in dedicated unit trains of 100 cars or more. These trains are shuttling between the prolific Bakken play in North Dakota to terminals in Cushing, OK and Gulf, East and West coasts. But that’s not all that is going on. As we discussed in Part I, as NGL production in remote markets increases so has the use of rail cars to move that product to market. The only thing different is that LPGs (propane and butane) must be shipped on “high pressure” cars due to the high vapor pressures of those products.
How has the market changed?
It has been a long, long time since rail cars were a preferred way of moving liquid hydrocarbons. That is because pipeline transportation is much cheaper and pipeline logistics are considerably easier to manage. Decades ago in the early days of petroleum production, railcars were a necessary evil to get product to market, because the pipelines did not exist. But over time that changed. When a pipeline could be economically justified, the pipe replaced rail – relegating railcars to lower volume, more remote business where there is not enough volume to justify pipelines. Because the rail volumes for this kind of business is low, almost all of this business is “manifest” – partial train loads shuttling cars between tank batteries, natural gas processing plants, refineries, rail terminals on pipelines and other destinations geared up to handle partial train-loads of products. In effect, until recently rail has been the backwater of the energy market and attracted little attention outside the tight knit cadre of traders and schedulers that specialized in tank car movements.