US RAIL TERMINALS, CRUDE DEMAND
Canadian Oil Sands
Demand, ‘000 b/d
Source: “Outlook for Rail Crude Oil Transport,” Rail Energy Transportation Advisory Committee, Surface Transportation Board, Mar. 14, 2013
One unit train can carry nearly 70,000 bbl. There are terminals in the Bakken area that can load nearly 140,000 b/d..
Rail carriers have several other non-price advantages over
pipelines. They can quickly respond to changing market circumstances and allow variation in crude oil supply sources,
the primary reason cited for cancellation of Kinder Morgan’s
proposed $2-billion Freedom Pipeline project. 7
Rail carriers also typically have shorter contract commitment periods than pipelines. They also often have shorter
transit times between point-of-origin and final destination.
Rail shipments take an estimated 8-10 days from Alberta to
the US Gulf Coast compared with 40-50 days by pipeline.
These advantages help offset the higher cost-per-barrel of
rail transportation per given unit of crude oil.
Rail transportation has also expanded in the Bakken and
Western Canadian crude oil production areas in recent years
through delivery of equipment and supplies to the production sites, complementing the shipment of crude and supporting on site rail personnel.
While tanker car availability presents a potential bottleneck to increasing rail movements, Navigant believes sufficient access to tanker rail cars will be available. Phillips 66
purchased 2,000 rail cars to transport crude oil from the Bakken to its refineries throughout the country, and noted in its
press announcement that the purchase would help the manufacturer underpin new production.
Cost advantages unique to rail exist because rail moves bidirectionally and can carry product back to the origin market.
Such carry-back options include diluent for use in pipelines.
Rail’s relatively small incremental cost of hauling diluent
from crude destination back to origin reduces per unit delivery costs.
Interest in shipping bitumen by rail from Canada to the
US has increased in recent years. An additional factor keeping the cost of shipping crude oil by rail closer to that of
shipping via pipeline is that much less diluent is required
when shipping bitumen by rail, making a greater quantity of
undiluted bitumen deliverable per rail car, with only small
additional expenses incurred in delivering diluent to the bitumen production area.
About 30%/bbl more bitumen can be shipped when diluents are not added, reducing the per-barrel cost of rail-delivered bitumen accordingly. While rail transportation of
bitumen is still in its infancy, the economics of transporting
bitumen by rail are superior to those of transporting bitumen blends, as greater quantities can be shipped with only
small additional costs stemming from the return shipment
The accompanying table compares rail and pipeline transportation costs for crude oil movements originating in the