|Photo credit: Vitaly Yamzin/Hemera/Thinkstock|
The U.S. boom in shale gas and oil production requires reliable and fast ways of moving the production to different markets. While key projects for major pipelines are being considered, some energy experts claim that shipping crude by rail is a more flexible option whose advantages over pipelines should not be overlooked.
It is generally believed that pipelines are the quickest and most effective means to transport oil and gas. According to Charles Blanchard, fossil fuels analyst at Bloomberg New Energy Finance, this is not the case and trains could actually deliver crude faster. In a recent interview with CNBC, he explained that speed and flexibility are of major importance especially for shale-based products because shale wells tend to run low on production relatively quickly. That is why it is essential for producers to move output fast, while wells are still churning out shale gas and oil at full swing.
Data from BNSF Railway reveals that crude travels at 15 to 20 miles per hour when moved by train, whereas it only moves at four to five miles per hour via pipelines. However, speed is not the most important advantage of rail over pipe. The biggest issue is cost, as pipelines have to be built from scratch in many locations, while rail networks are already widely available across the United States.
Overall, there are 566 U.S. freight railroads that span over 138,000 miles, according to the Association of American Railroads. This fact highlights the cost-effectiveness of the method and suggests that the industry may be better equipped to transport crude by rail, especially in remote regions such as North Dakota, which produces large amounts of shale gas from the Bakken formation.
When putting forward the advantages of rail, one should consider its pitfalls as well. Transporting crude by train can be risky, especially in terms of environmental hazards. Sometimes leaks can occur, which can pose a pollution risk. Railroads can also be dependent on weather conditions and trains sometimes derail, which can result in explosions and fire.
Despite this, Blanchard claimed that railroads involve fewer regulatory and political hurdles than a pipeline construction project and many oil producers favor the flexibility and reliability of trains. As shale gas production drops sharply after the first couple of years of exploitation, many producers are wary of signing long-term deals that typically come with pipelines, he added.
The uncertainty in pipe projects, like Keystone XL, is another factor that causes hesitation among industry representatives. This makes them look for alternatives and one of the companies that have already come up with one is Canadian oil firm Cenovus Energy, which stated that it would increase the amount of oil it ships via train to its U.S. refineries from 6,000 barrels to 30,000 by the end of next year. Richard Dembicki, the company's director of crude oil marketing, explained that railroad transport was easier to contract and expand and could target high-value markets, whereas pipelines required long-term commitment and the market was quite restricted.