Crude oil key to Watco short lines' traffic growth
But here’s one that isn’t in the Top 10: crude oil. That’s not a surprise because the United States isn’t a major oil producer. Yet, one large underground oil deposit beckons traffic growth for four Watco Cos. Inc. short lines.
The Bakken Oil Formation stretches across Montana, North Dakota and the southeastern portion of Canada’s Saskatchewan province. The 200,000-square-mile formation could sustain the United States’ oil needs for the next two decades.
But pumping the oil out of the reserve has been a major sticking point since the formation was discovered more than 50 years ago because of horizontal drilling limitations. During the past year or so, horizontal drilling advances have made it feasible and more affordable to extract oil from the formation by drilling down and parallel to the underground reservoir.
But it didn’t take long for pipelines used to transport extracted oil southward to become congested, prompting shippers to move most of the oil by rail.
That’s opened the door for Watco’s Yellowstone Valley (YSVR), Kansas & Oklahoma (KO), South Kansas & Oklahoma (SKOL), and Stillwater Central (SLWC) railroads, which are situated along the oil’s supply-chain route. In summer, the four short lines began moving crude oil to points in Kansas, Oklahoma and Texas. SLWC started to handle non-Watco-originated carloads in July. Later, YSVR and SKOL began to handle Watco-originated traffic in August, and YSVR and KO did likewise in September.
In addition, Watco’s Reload Division began to transload oil to trucks at several terminals for delivery to nearby refineries, and the company’s mechanical shop obtained certification to repair crude-oil-carrying tank cars. The number of cars needing to be inspected and repaired is projected to increase by more than 1,000 in the next five years.
The United States, which is seeking ways to reduce its reliance on foreign oil, is heading for an “oil boom” because of the formation’s potential, Watco officials said in the short-line holding company’s September/October newsletter. The company’s four short lines are anticipating a traffic boom as crude oil shipments increase.
With waning lumber/forest products, intermodal and paper products traffic, carloads of motor vehicles/equipment and chemicals barely holding their own, and a number of new ethanol plants on hold because of economic turmoil, short lines can use all the traffic-growth opportunities they can get.
Posted by: 
Jeff Stagl | Date posted: 11/25/2008
Comments
Posted by Mike Drelicharz on 11/26/2008 1:25:35 PM
I think you meant to write that the US is a major oil producer. I believe we rank 3rd behing Saudia Arabia and Russia.
Posted by ted lane on 11/26/2008 3:48:02 PM
Obviously the RR industry is the transportaion choice for the future. Lokk at Warren Buffets investmates as well as others. With corn and other grain being pulled as well as record tonages of coal according o mny sources, the latest being "Extreme Trains" on the Nature Channel programmed at (9:00 each Tuesday evening) here in Chicago the RRindustry will move ahead dramicatly regardless of thge doom and gloom trqnsportaion analysts, (The car and Truck guys from Detroit). Do you have any reference to any of your articles that relates directly to the ShortLIne RR growth. I sure would like to get a good read from your professional reports. Thanks in adavance. Ted
Posted by Peter Cooper on 11/27/2008 2:02:14 PM
Why would any shippers want to ship any thing by rail let along by short line only to have their freight sit at the interchange points for some times weeks. If the short lines want to grow their business they should unite to eliminate paper barriers.
Posted by ted lane on 12/1/2008 10:45:34 AM
Great article, but due to your spce limitaions this is just the tip of the tip of the iceburg. I googled on to the Shortlines Websire and found easily 10,000 pages plus on why the shortlines are the future starting now, min the Railroad transportaion industry. There uis also a ton of legislation being passed as well as tax considerations, loans and so on to help ratched the Shortlines up to speed to accomodate the "Rush" The basic products being transportaed as we speak by the S/Lines are coal, grain, and anything else thast there short track requires to help partnership with some of the Class !'s. Try these Websites and you will be truly amazed and overwelmed at the positive information you find for the SHort Line Train transportation markets. I did not find anything negetive, and with prices going through the roof for other modes of transportaion did not expect to. These are a real good read and vision into the future of the Shortline Industry. Ted Chicago
Posted by Larry Kaufman on 12/1/2008 11:00:29 AM
Ah, "paper barriers." The person who brought this one up neglected to inform readers what so-called paper barriers are. Here's a simple explanation: when selling or leasing a branch line to a short line operator, it is a common practice of the Class 1 doing the selling or leasing to require as part of the sale or lease contract that the short line operator interchange all traffic with it - a paper barrier, if you will. There is nothing wrong with a railroad wanting to retain the long haul on traffic it always has handled. If paper barriers are banned -- STB now is considering paper barriers on a case by case basis -- the result will be many more lines abandoned. These lines are not profitable for the Class 1s and if the Class 1 cannot be assured of the long haul traffic, it will demand a higher price in the sale or lease, most likely higher than the short line operator can afford. Many of these lines will not be sold or leased, but will be abandoned instead. Perhaps, by not explaining the issue the original participant at this blog was serving an agenda of his own?
Posted by michael willis on 12/1/2008 11:32:10 AM
An AMTRAK ACELA HIGH-SPEED NETWORK powered by an updated national electric-grid would be an impressive system. According to the HISTORY CHANNEL documentary the ACELA ARTICULATED TRAINSET could attain speeds of close to 200 miles per hour on improved HIGH-RAIL and total grade seperation on the wide open spaces between cities- that would give the airlines a little case of the 'jitters' and finalize a divorce from the influence of OPEC and its petrostate dictators, kings, sultans & crown princes.
Posted by Joseph Tovey on 12/1/2008 1:22:51 PM
It might be more profitable for all parties for the rail lines to permit (for a fee, of course) the use of their right-of-way for oil pipelines hauling the crude, while also making money hauling solid freight (drilling rigs, pipe, pumps, storage-tank sections, etc.) to the well operators. In general, the rule-of-thums is that the cost of moving large quantities of oil via rail vs. appropriately-sized pipeline is about 5 to 1 or more. 'Twould be a pity to undermine potentially important production by loading on unnecessary costs, when all US parties could do well by each sticking to its economically advantaged specialty.
Posted by Larry Kaufman on 12/2/2008 9:40:29 AM
Joseph Tovey is sort of right about the possibilities of using rail rights of way to move non-rail traffic, but not entirely. Many U.S. rail rights of way have fiber optic cables buried along them and the telecommunications companies that own the cables pay an appropriate negotiated fee. Would-be tenants are not always willing to pay that appropriate rate, however. I can remember back in the 1970s when the coal slurry pipeline developers came to BN asking to bury their pipeline along the right of way. BN was willing to consider that and studied the proposal, finally coming to the conclusion that the pipeline developer would not pay a fee sufficiently high enough to make up for the traffic BN would lose. BN and now BNSF have prospered by their ability to move hundreds of millions of tons of coal in a virtual pipeline on wheels. Railroad managements are not inherently stupid. Give them an opportunity to make a profit - and a reasonable return on investment - and they usually are smart enough to recognize it.
