By Jeff Stagl, Managing Editor
The Midwest Association of Rail Shippers held a one-day conference in Lake Geneva, Wis., on July 9 as part of its summer meeting. The conference theme? “Riding the Rails to Economic Recovery.”
These days, any discussion about that topic has to include — if not center around — crude by rail (CBR), and conference presenters didn’t disappoint. Since it occurred three days prior, several speakers touched on the tragic Quebec derailment, but most had more things to say about CBR’s positive effects on the rail industry.
The event included a “fuel by rail” panel discussion that featured four Class I executives sharing details about their growing CBR businesses.
BNSF Railway Co. is the only carrier that touches all western shale plays, said Teresa Perkins, the Class I’s general director-petroleum. The railroad currently moves 600,000 barrels of crude oil per day and expects that volume to grow, she added.
Overall, BNSF serves 24 crude destinations, a figure that’s projected to climb to 50 by 2014’s end. In the Bakken Shale, the Class I serves 10 unit train facilities and another three are under development.
BNSF also is working with Canadian railroads to participate in moves of heavy crude, said Perkins. Oil sands in Canada produce that type of crude, which is denser and heavier than the light sweet crude produced in U.S. shales. Points in the Los Angeles basin and along the Gulf Coast are prime destinations for heavy crude, said Perkins.
CN’s crude franchise predominantly involves heavy crude, which the Class I can transport via CBR from Canadian origins to destinations along Canada’s coasts or the U.S. Gulf Coast, said Sebastien Labbe, the railroad’s director of sales and marketing-crude and condensate.
Although crude is a relatively small component of CN’s traffic mix, it generates revenue that’s higher in proportion to volume, he said. A noticeable evolution in Canada these days is the conversion of small transload facilities to unit train facilities, said Labbe.
What’s noticeable to Kansas City Southern officials are gaps in the U.S. pipeline network outside of major markets, said Darin Selby, the Class I’s assistant vice president of marketing and sales-energy. That’s a benefit to KCS, which is more of a destination CBR carrier that connects with every other Class I to reach a number of shales/basins and destination points, he said.
The Class I is on pace to reach 14,000 carloads of crude per week in 2013 compared with 12,000 in 2012.
Meanwhile, a lack of connectivity from western shales to eastern refineries is benefitting CSX Transportation, said Director of Business Development Wesley Ann Barton.
CBR has helped eastern refiners “level the playing field with other refineries in the U.S.,” she said.
Eighteen months ago, three refiners in the Philadelphia area expected to be sold or shut down, but they now are or soon will be refining western crude due to high demand, said Barton. One transload center in Philadelphia will be converted for crude in about three months.
Eastern refineries are in large population centers that require rail terminals because, unlike in the West, there are no wide open spaces to support large transportation operations, said Barton.
Watco Cos. L.L.C. Chief Executive Officer Rick Webb also addressed CBR during his keynote speech. The company’s subsidiary short lines serve nine crude facilities and three frac sand facilities, said Webb. Watco operates 30 short lines in 23 states and Australia.
The company also serves a 52-acre industrial park in Dore, N.D., that focuses on Bakken customers, said Webb.
Energy and chemical business now account for 21 percent of the company’s annual freight revenue by commodity, he said. Currently, the company is analyzing 25 additional opportunities in crude.
Watco will study a number of those opportunities with Kinder Morgan Energy Partners L.P., which has been an “extra beneficial” partner, said Webb. In 2011, Watco and Kinder Morgan reached an agreement to jointly construct and operate several rail transload facilities in key markets for loading and unloading crude and other oil/gas industry products.
Three other speakers also touched on CBR during their presentations, including these paraphrased highlights:
CBR is the highlight of what’s going on in the rail industry, especially since coal and agricultural products volumes are not doing well. Crude now accounts for 5 percent of all rail carloads versus 2 percent in 2011. — Eric Starks, president of freight analysis and forecasting firm FTR Associates
The early objective of CBR was to bridge the transportation gap until pipelines were built, but now it has become the primary transportation mode for Bakken crude. In terms of total carloads generated by CBR, BNSF Railway Co. ranks first followed by Union Pacific Railroad and Canadian Pacific. UP is the primary beneficiary of frac sand traffic because of its network in northern Wisconsin. — Graham Brisben, chief executive officer of consulting firm Professional Logistics Group Inc.
Eighty-five percent of the current backlog of rail-car orders involve tank cars. The crude-capable fleet of cars has increased by 22,300 units since Jan. 1, 2008. There is a risk that there could be an over-build of tank cars. — Paul Titterton, vice president and group executive of rail-car lessor GATX Corp.
Browse articles on Midwest Association of Rail Shippers on Progressive Railroading