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Trains are transporting more oil as production booms

Companies like Oklahoma City-based Continental Resources Inc. had no choice but to turn to rail, as booming production in North Dakota’s Bakken Shale has exceeded the capacity of available pipelines.
By Jay F. Marks, Business Writer Modified: June 2, 2014 at 10:00 pm •  Published: June 2, 2014
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By next year, railroads will be able to carry 50 percent more oil out of Canada than the controversial Keystone XL pipeline, a project stuck in regulatory limbo for more than five years.

Trains across the United States are increasingly laden with crude oil as drillers use the combination of horizontal drilling and hydraulic fracturing to unlock new petroleum reserves.

Domestic production has outstripped the nation’s pipeline capacity, especially in areas that are not historical hotbeds of oil and natural gas activity.

Companies like Oklahoma City-based Continental Resources Inc. had no choice but to turn to rail, as booming production in North Dakota’s Bakken Shale has exceeded the capacity of available pipelines.

Continental started moving oil by rail in 2008, said Jeff Hume, the company’s vice chairman of strategic growth initiatives. He said the Bakken produces good quality oil that is in demand by refiners.

“They’ve been doing unit intermodal transportation for years. You can see it from right here,” Hume said, looking down at the tracks visible from his office window at Continental’s downtown headquarters.

More than 300,000 carloads of petroleum products have been shipped by rail so far this year, according to the Association of American Railroads. That figure, which translates into almost 220,000 million barrels of crude, is up nearly 7 percent over the same period of last year.

The association reported that railroads transported about 11 percent of the country’s crude oil production during the first nine months of 2013, up from a negligible percentage just a few years ago.

Hume said railroads are part of the oil industry’s roots, since pipeline construction didn’t begin until after World War II. Now midstream companies are scrambling to build pipelines in areas that were not part of past oil booms.

“We’re virtually rebuilding the United States’ infrastructure,” he said.

Exxon Mobil Corp. CEO Rex Tillerson said crude-by-rail volumes are back at the same level as they were at when U.S. production peaked.

“The production is just coming on faster than we can build the infrastructure, so crude by rail will continue,” he said last month at the Oklahoma State University Energy Conference in Oklahoma City. “If we can’t get a pipeline built, we’re going to moved to the next alternative, which is either truck or rail.”

He also dismissed the hopes of activists who have campaigned against Keystone XL and other infrastructure projects, with an eye toward getting the country to move away from fossil fuels in favor of renewable energy.

“Crude’s not going to stay in the ground,” Tillerson said. “It’s just too valuable.”

Tillerson said rail will remain a common means of transporting crude oil because it can reach places pipelines can’t at this point.

“It’s going to continue to be an important part of the crude transportation infrastruture,” Tillerson said. “It’s going to grow right along with production growth.”

Safety questioned

Although there are questions about the safety of transporting oil by rail after a number of accidents around North America, Hume said Continental has not had any issues.

“We’ve had zero incidents at any rail loading or unloading terminal,” he said.

The Association of American Railroads said the estimated spill rate for oil transported by rail between 2002 and 2012 was about a third of that for pipelines, even though there are more stringent reporting requirements for railroads.

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