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US crude rail deliveries hit record high, still rising

02.21.2013  | 

Refiners increasingly depend on rail cars to bring in the oil being produced in increasing quantities throughout the US and Canada. Innovations in drilling techniques have allowed oil companies to cull oil from shale formations faster than pipeline companies can connect the wells to market.

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By BEN LEFEBVRE

The use of rail cars to transport crude oil in the US reached a record in 2012 and continues to rise, the Association of American Railroads said Thursday.

Refiners increasingly depend on rail cars to bring in the oil being produced in increasing quantities throughout the US and Canada. Innovations in drilling techniques have allowed oil companies to cull oil from shale formations in South Texas, North Dakota and elsewhere faster than pipeline companies have been able to connect the wells to market.

A record 233,811 carloads of crude oil traversed the US in 2012, up from 65,751 carloads the year before, the association said. In January, crude oil and fuel shipments via rail averaged 13,043 carloads a week, up 54% from the 2012 weekly average, the association added.

"There's never been a year when they've been 250% plus up," said Kevin Sterling, analyst at BB&T Capital Markets. "The tank car manufacturers, they're building tank cars as fast as the orders come in."

In Canada, rail shipments of crude oil and finished fuel reached an average of 6,838 carloads in January, up 35% from the 2012 average.

Rail shipments of oil will continue to rise as PBF Energy, Phillips 66 and other refiners increase their demand for oil from West Canada, Cushing, Okla., West Texas and the Bakken shale formation in North Dakota, analysts have said.

Kinder Morgan Energy Partners said Thursday its joint-venture project KW Express would build a 210,000 bpd crude-by-rail project on the Houston Ship Channel, a major conduit for oil coming to the Houston refining belt.

The use of rail cars is also expanding further to the east coast, where PBF runs two refineries that had been dependent on more expensive imported oil.

"We're convinced this is a very, very long-term trend," PBF chairman Tom O'Malley said of railcar-oil delivery during a call with investors.


Dow Jones Newswires



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