Follow us on Twitter!
Blog Header Logo
DG&A's Transportation Consulting Blog
Subscribe to this list via RSS Blog posts tagged in derailments

The two previous blogs in this series highlighted the critical role that the rails play in transporting crude oil. They also noted that the surge in derailments is raising serious questions about the safety of using rail transportation. In addition, as a result the large drop in the price per barrel, below the estimated breakeven cost level, this raises concerns about the ongoing economic viability of moving crude oil by rail. This blog will focus on what can be done to improve rail safety and the economics of rail transportation.

Improve the Safety of Rail Transportation

The key stakeholders on this issue are tank car manufacturers, energy producers, railroads and governments. They each have a responsibility to protect the safety of the public. It should be pointed out that Lac Megantic, Quebec, the site of the worst crude oil rail disaster, has a population of less than 6000 people. There were 47 people who perished in that rail disaster and the cost to clean up and rebuild the downtown where the train hit is projected to be $400 million. In other words, if a disaster of this nature was to hit a mid-size or major city, the cost in lives and dollars could be of an extraordinary magnitude. Since these large stakeholders collectively are deriving billions of dollars in revenue, profits and taxes from this sector, they have a major responsibility to address the safety issue. The following is a summary of what has been done, how these changes are working out and what still needs to be done.

Change the Composition of the Oil

Under regulations adopted last year and to be put into effect in April, oil companies in North Dakota will have to remove volatile gases such as propane from their crude before pumping it into a rail car. This is estimated to add another 10 cents a barrel to the cost. In April, a regulation in North Dakota requires oil to be kept at a vapor pressure below 13.7 pounds per square inch goes into effect. This process known as conditioning, which companies can use to meet that standard, is the “bare minimum” step to lower volatility.

...
Hits: 1576
0
Continue reading 0 Comments

The business case for shipping crude oil by rail was outlined in the previous blog. The rapid growth in the production of oil in Canada and the United States coupled with the flexibility and efficiency of shipping crude oil by rail has seen the volumes moving via this mode increase 5000 percent growth rate over the past 5 years. Crude oil by rail has grown from almost zero to eleven percent of the revenue of the class 1 railroads during this period. Two things have had a dramatic impact on this business model. They are the rapid and huge drop in the price of a barrel of oil and the level of derailments that have made this a major safety hazard. This blog will focus on the current economics of moving oil by rail. 

The Cost of Producing Crude Oil

The cost required to lift crude oil and maintain oil wells, equipment, and facilities is called production cost or lifting cost. A Market Realist article published in January 2015 draws information from the EIA’s (Energy Information Administration) 2009 report that shows the production cost of crude oil was ~$12 per barrel for the United States and ~$10 per barrel for the Middle East. But recent consensus says these costs could range from $20 to $25 per barrel.

The Cost of Shipping Crude Oil by Rail

The cost to transport a barrel of crude oil ranges between $10 and $20 depending on the origin and destination locations. It must be kept in mind that some of the major rails in the U.S. and Canada have been adding a $1000 surcharge per tanker car in cases where old DOT-111 cars are used. This adds about $1.50 to the per barrel cost. An article published in the February 2 Toronto Globe & Mail stated that recent developments are casting doubt on the business case for shipping crude oil by rail. Since rail costs are about double the cost of shipping via pipeline, “it is unclear if high costs make shipping by rail a money-making mode of transport for producers.” It should be noted that the above-mentioned breakeven analysis doesn’t reflect the additional costs that will come from the necessary upgrades to improve rail safety (as outlined in the next blog). These improvements are expected to add billions of dollars to shipping costs.

...
Hits: 985
0
Continue reading 0 Comments

Volume of Crude Oil Moving by Rail in the United States and Canada

U.S. crude oil production has risen sharply in recent years, with much of the increased output moving by rail. In 2008, U.S. Class I railroads originated 9,500 carloads of crude oil. In 2013, they originated 407,761 carloads. In the first half of 2014, it was 229,798 carloads. Much of the recent increase in crude oil production has been in North Dakota, where crude oil production rose from an average of 81,000 barrels per day in 2003 to more than one million barrels per day by mid-2014, making it the second-largest oil producing state. Crude oil output in Texas, the top crude oil producing state, was relatively flat from 2003 to 2009, but has skyrocketed since then, exceeding three million barrels per day by mid-2014. Canada ships 3.2 million barrels a day via pipeline and 215,000 barrels a day via rail.

Assuming, for simplicity, that each rail tank car holds about 30,000 gallons (714 barrels) of crude oil, the 229,798 carloads of crude oil originated by U.S. Class I railroads in the first half of 2014 was equivalent to 900,000 barrels per day moving by rail. According to EIA data, total U.S. domestic crude oil production in the first half of 2014 was 8.2 million barrels per day, so the rail share was around 11 percent of the total.

Advantages of Transporting Crude Oil by Rail

Pipelines have traditionally transported most crude oil, but in recent years railroads have become critical players. In addition to the fact that railroads provide transportation capacity in many areas where pipeline capacity is insufficient, railroads offer a number of other advantages for transporting crude oil:

...
Hits: 1552
0
Continue reading 0 Comments

Most Recent Posts

Search


Tag Cloud

Canada's global strategy the future of transportation intermodal Transport Capital Partners (TCP) FMS Finance and Transportation Accessorial Charges online shopping Trucking BlueGrace Logistics 2013 Economic Forecast Microsoft Otto Facebook transportation audit cheap oil Crude Oil by Rail driver shortages LTL Politics home delivery financial management NCC Donald Trump freight costs freight payment freight cost savings CN Rail fuel surcharge Rotman School of Business Infrastructure freight RFP trade Success freight bid economic forecasts for 2012 Entrepreneur Grocery Blogging broker security dynamic pricing Dedicated Contract Carriage 3PLTL transportation news coaching Toronto Deferred Packaging Schneider Logistics Trump consumer centric solutions provider Broker tanker cars Keystone Pipeline Shipper Derek Singleton Canada-U.S. trade agreement YRC Driving for Profit Training New Hires truck drivers home delibery Education Crisis management marketing NS driver shipping Leadership Horizontal Supply Chain Collaboration selling trucking companies CSA scores New York Times 2012 Transportation Business Strategies. Jugaad Training Load Boards network optimization Global experience Spanx Doug Davis CN President Obama Success failure entrepreneur Climate Change US Housing Market shipper-carrier collaboration Stephen Harper Trade Vision Werner ProMiles US Economy Freight Management Retail Freight Recession Dedicated Trucking trucking company acquisitions Carriers freight transportation in 2011 peak season e-commerce robotics Canadian freight market shipper-carrier contracts Career Advice freight audit buying trucking companies Whole Foods truck driver 2015 Economic Forecast ShipMax Railway Association of Canada Right Shoring Transportation Buying Trends Survey 2014 freight forecast Transportation TransForce Canadian truckers TMP Worldwide transportation newspaper 3PL dimensional pricing CSA Inbound Transportation Business Strategy Business skills Loblaw CSX Dan Goodwill Fire Phone KCS Consulting Emergent Strategy US Election professional drivers freight payment freight audit Muhammad Ali Freight Carriers Association of Canada Freight Capacity Harper Davos speech US Auto Sales Hudsons Bay Company carrier conference Search engine optimization MBA Sales Training economy Conway Yield Improvement Rail Transportation service Colilers International Warehousing Amazon Transcom Fleet Leasing Failure Cleveland Cavaliers Retail transportation RFP business start-up LinkedIn Rate per Mile Comey LCV's Management Freight Rates MPG routing guide pipelines CITA Shipper Pulse Survey Wal-Mart IANA TMS Transplace Adrian Gonzalez Sales Management capacity shortage Global Transportation Hub Packaging Canada shipping wine 360ideaspace Doug Nix JB Hunt Driver Shortage Canadian economy David Tuttle Celadon freight rate increases last mile delivery Freight Matching CRM USA Truck driverless rail safety Social Media in Transportation Transloading Load broker BNSF freight transportation conference University of Tennessee freight forwarders FCA Scott Monty Map-21 Ferromex Canada U.S. trade customer engagement Freight Reshoring Freight Shuttle System Life Lessons $75000 bond automation Surety bond FMCSA future of freight industry capacity shortages employee termination Job satisfaction freight transportation UP FCPC bulk shipping Omni Channel small business Masters in Logistics broker bonds freight agreements Business Transformation Strategy Outsourcing Sales Associates Bobby Harris shipper-carrier roundtable EBOR mentoring Regina Social Media Swift Canadian Transportation & Logistics energy efficiency hiring process derailments 2014 economic forecast CP Rail Truckload Sales freight broker Freight contracts APL Software Advice autonomous vehicles Tracy Matura US Manufacturing NMFC Twitter FuelQuest Distribution 2014 freight volumes NAFTA drones

Blog Archives