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

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: 3415
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: 2779
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: 3079
0
Continue reading 0 Comments

Most Recent Posts

Search


Tag Cloud

Right Shoring Wal-Mart ShipMax Business Development EBOR driverless Impeachment consumer centric Canadian truckers Trump Grocery drones Comey freight agreements UP broker security Swift Rail CRM Climate Change driver shortages mentoring Toronto routing guide Canada U.S. trade Freight Capacity technology Horizontal Supply Chain Collaboration 2014 freight volumes Global Transportation Hub President Obama computer protection IANA Covid-19 2012 Transportation Business Strategies. Jugaad MBA coaching Werner small parcel freight forwarders Surety bond freight broker FuelQuest Freight Shuttle System Transcom Fleet Leasing CN Rail automation fuel surcharge solutions provider Driving for Profit transportation news business security Social Media in Transportation Transportation laptop Digital Freight Networks Canada's global strategy freight payment driver pay 3PLTL Conway Load broker dimensional pricing transportation audit Donald Trump autonomous vehicles Adrian Gonzalez Associates CP Rail US Housing Market Life Lessons Training New Hires trucking company acquisitions USA Truck Warehousing US Election Business Transformation Strategy Inbound Transportation $75000 bond Celadon NCC freight transportation conference China Rate per Mile Sales supply chain management Justice Success KCS Shipper US Manufacturing professional drivers Career Advice business start-up New York Times Freight 2014 economic forecast truck drivers freight transportation in 2011 rail safety computer security Canadian freight market Otto online shopping economic forecasts for 2012 Transportation Buying Trends Survey Canadian Transportation & Logistics computer Freight contracts Freight Management robotics recession Job satisfaction carrier conference Trucker Protest FCA Uber Freight CN TransForce the future of transportation BNSF Load Boards Electric Vehicles Infrastructure Trucking Emergent Strategy freight costs freight bid ELD Dan Goodwill Whole Foods Education capacity shortage 360ideaspace 2015 Economic Forecast USMCA Yield Improvement Transplace Broker freight audit Scott Monty Finance and Transportation Map-21 Canada shipping Online grocery shopping Sales Management Anti-Vax General Motors 2013 Economic Forecast digital freight matching JB Hunt Driver Shortage customer engagement Habs Training truck driver Global experience dark stores Geopolitics Tariffs autos economic outlook CSA scores MPG last mile delivery Coronavirus Entrepreneur e-commerce Hudsons Bay Company Bobby Harris Blogging Business skills Tracy Matura Omni Channel TMP Worldwide Crude Oil by Rail future of freight industry home delivery Blockchain FCPC Politics shipper-carrier collaboration Toronto Maple Leafs Crisis management FMS LTL FMCSA Canadian economy Schneider Logistics Rotman School of Business Amazon employee termination freight marketplace Dedicated Contract Carriage CSX Transloading dynamic pricing Consulting shipper-carrier roundtable NMFC Leadership Doug Nix Distribution Facebook tanker cars Packaging Freight Rates Freight Carriers Association of Canada Muhammad Ali NAFTA LinkedIn risk management 2014 freight forecast Hockey Retail CSA Business Strategy YRCW LCV's trade freight RFP Digitization pipelines Truckload financial management Retail transportation Success failure entrepreneur driver Government Spanx selling trucking companies derailments Harper Davos speech Cleveland Cavaliers Failure US Auto Sales Social Media marketing Doug Davis truck capacity Stephen Harper Trade Vision 3PL Colilers International Fire Phone shipping wine TMS Reshoring Sales Training freight payment freight audit Sales Strategy Accessorial Charges shipper-carrier contracts network optimization Canada-U.S. trade agreement YRC cyber security cars Value Proposition Masters in Logistics APL Outsourcing Sales home delibery bulk shipping David Tuttle transportation newspaper Montreal Canadiens US Economy Ferromex Transportation service energy efficiency Dedicated Trucking Freight Matching Leafs Derek Singleton natural disasters Railway Association of Canada buying trucking companies ProMiles Management peak season Canadian Protests CITA Shipper Pulse Survey economy Loblaw small business freight transportation freight cost savings Keystone Pipeline Software Advice cheap oil Twitter capacity shortages asset management hiring process RFP University of Tennessee Transport Capital Partners (TCP) BlueGrace Logistics Microsoft intermodal Carriers Freight Recession NS freight rate increases broker bonds Deferred Packaging Search engine optimization Regina

Blog Archives

March
February
December
October
September
August
June
May
April
March
January