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February 12, 2016

Railroads, Not Pipelines, Are the Future for Crude, Argues Bakken Shipper

The head of one of the biggest rail shippers of Bakken crude oil from North Dakota to U.S. refineries made an assertive case Monday for transporting crude by rail, contending that the pipeline system isn’t capable of dealing with today’s complex and rapidly evolving energy markets.

Global Partners CEO Eric Slifka gave one of the keynote addresses at the conference of the Energy Department’s Energy Information Agency.

Railroads, he said, “will provide the foundation necessary to access a multitude of markets, from a multitude of locations, with a multitude of products. Rails offer flexibility, optionality, rapid transit, market penetration, all the while requiring low levels of capital.”

He added that “a significant amount of the necessary [rail] infrastructure is already in place and primarily requires improvements and updates.”

Slifka said there are only 57,000 miles of crude pipeline in the United States, but 140,000 miles of railroad lines. (However, those rail lines are carrying other products in addition to oil.)

Building a new oil pipeline requires “a massive amount of capital” and incurs delays for government permitting and construction.

Slifka argued that “pipelines do not allow the flexibility necessary, as supply and demand patterns change quickly with all the various increases and geographic shifts in production. I cannot emphasize that enough.”

Signing a 10- or 15-year pipeline contract would be very risky at this point, the Global CEO contended. “You’re making an enormous bet. … What you’re saying is, ‘I know how the U.S. energy sector is going to develop, I know where the crude is going to develop, I know where I’m going to be able to source the cheapest barrels, and I know what’s going to be the highest-value market for those barrels.’”

Despite derailments and explosions of Bakken crude on tanker cars in the past year, Slifka said less oil is spilled per ton mile on rail than other methods of transportation and added that “despite skepticism, rail may actually be the safest mode of transportation of crude.”

Slifka said the energy, railroad, and other industries will cope with increased costs which will result from a pending regulation from the Pipeline and Hazardous Materials Safety Administration.

“This is big enough that all the parties involved are going to want to make sure that products, crude, NGLs [natural gas liquids], other liquids, can be moved safely throughout the system,” he said.

Railroads, oil shippers, and others will make the necessary investments in safety. “There’s just way too many interested parties here for a deal not to come together,” Slifka told the conference.

He also praised the Canadian government for requiring that older rail cars used for carrying crude be phased out by 2017. The older type of tank cars “can almost always be expected to breach in derailments that involve pileups or multiple car-to-car impacts,” said a report in 2012 from the National Transportation Safety Board.

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    Feb. 2, 2016
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