All Aboard for Cheaper Energy

Fast trains are bringing lower priced oil to new markets.

By SHARE
Interfering with railroad tracks while on horseback isn't recommended, as a Florida man found.
Interfering with railroad tracks while on horseback isn't recommended, as a Florida man found.

Gregg Laskoski is a senior petroleum analyst for GasBuddy.com

For refineries, access to cheap oil can be the linchpin for critical business decisions. It was one of the reasons Sunoco and its refineries were sold to Energy Transfer Partners last year. It was simply a losing proposition, they said, to run refineries in Philadelphia that were too reliant on premium-priced Brent crude oil and inaccessible for lower cost crudes. 

But with the oil boom from the Bakken shale of North Dakota and the Alberta tar sands, change is coming, as fast trains are bringing lower-priced Canadian and Bakken crude to new markets. McClatchy Newspapers reports that the dramatic growth of crude-by-rail business in North America illustrates how quickly shippers can adapt to a new option. North Dakota, now the nation's number two oil-producing state behind Texas, ships the majority of its oil by rail from loading terminals built mostly in the past three years. 

[See a collection of political cartoons on energy policy.]

How substantial is the volume we're talking about? Canadian National, whose rail network runs from the western Canada oil region to the U.S. Gulf Coast, says it hauled 30,000 tank car loads of crude in 2012, and expects to double that this year. And on the East coast, PBF Energy built a rail terminal at its Delaware refinery to accept Canada's heavy crude. They're ordering rail cars to transport 80,000 barrels per day.  

Yes, the rails are humming. Ron White from the Los Angeles Times reported earlier this month that the BNSF Railroad (which serves the west coast) moved 1.3 million barrels of oil in 2008. In 2012 that figure soared to 100 million barrels, with most of that oil originating from North Dakota.

[See a collection of political cartoons on gas prices.]

Particularly for California, which has been somewhat isolated from the oil infrastructure serving the rest of the U.S. and dependent on imports shipped in to a declining number of aging refineries, the prospect of lower cost North American crude oil should yield some recognizable benefit for motorists, one hopes, with retail prices running cheaper than in recent years.  

Of course, we need more east-west pipeline too. But until those projects are completed, it appears that rail and tank truck fleets are delivering an energy stimulus whose time is long overdue.

But if you're looking for a hole in this donut, we can't ignore that either. Current requirements for increased ethanol usage from a 2007 energy law might reduce the gains consumers hope for and incentivize the ramping up of exports, since exported fuel is not required to comply with the mandated increase of ethanol blending. Let's see.

  • Read Thomas Pyle: Obama's New Energy Trust Will Simply Reward Failure
  • Follow the U.S. News On Energy blog on Twitter.
  • Check out U.S. News Weekly: An insider's guide to politics and policy.