A few years back, crude-by-rail (CBR) emerged as the go-to fix that enabled pipeline-constrained shale regions to move fast-increasing volumes of oil to market. A total of 178 rail terminals were built or significantly expanded, with 99 loading terminals and 79 unloading terminals developed in the U.S. and Canada. But changes in the market -- lower oil prices, slowing/declining production, new pipeline capacity -- have been challenging and undermining CBR. Only about 20% of U.S. nameplate capacity is being used, and further declines in CBR volumes are expected, prompting serious questions about CBR’s future role. Today, we discuss RBN Energy’s latest Drill Down Report, which examines CBR’s pros and cons, its evolution, and its current status and prospects.
In 2007, in the early dawn of the U.S. Shale Era, crude oil production in the Bakken region in North Dakota averaged less than 150 Mb/d, all of which could be taken to market by nearby pipelines that connected western Canada and the U.S. Midwest or be run at the local Mandan refinery. By January 2009, though, Bakken production was approaching 200 Mb/d, a year later it was averaging 250 Mb/d, and by January 2011 the region’s output was topping 350 Mb/d, far outstripping the capacity of nearby pipelines and the local refinery. And that was just the beginning; the Bakken’s output rocketed to more than 560 Mb/d by January 2012, and to nearly 800 Mb/d by January 2013—10 months later it was topping 1MMb/d, and 10 months after that it was past 1.2 MMb/d.
Pipelines are almost always the most cost-effective way to move large volumes of crude oil, but developing new pipeline capacity takes planning, producer commitments, governmental and landowner approvals, and (perhaps most important) time—several years from plan concept to flowing oil. The problem was, producers in the Bakken and other fast-growing shale plays short on takeaway capacity had no time. Oil prices were attractive, particularly for barrels delivered to coastal refineries, but local prices were depressed due to transportation capacity constraints. The oil was ready to flow, and increasing volumes of it needed to be delivered to refineries or to storage—and as soon as possible. Crude-by-rail emerged as the quick-fix that producers needed.