Trains Gain Steam In Race To Transport Crude Oil In The U.S.

Oct 28, 2013
Originally published on October 30, 2013 6:00 pm

On a quiet fall morning in the Delaware countryside, a lone sustained whistle pierces the air. Within moments, a train sweeps around a broad curve, its two heavy locomotives hauling dozens of white, cylindrical rail cars, loaded with 70,000 barrels of crude oil.

It's a scene playing out with growing frequency across the United States and Canada. The U.S. is awash in oil, due in large part to advances in drilling techniques such as hydraulic fracturing, or fracking. U.S. production hit a 24-year-high in September. Yet there is a challenge getting the crude from the field to the refinery.

Most oil is moved by pipeline and, five years ago, refiners pinned their hopes on the Keystone XL project. The 1,700-mile, Canadian-built pipeline would carry millions of gallons of crude oil from Alberta, Canada, south to refineries along the Gulf Coast. But the Obama administration has yet to decide whether to allow the project to go forward, in large part because of environmental concerns.

In the meantime, soaring production in the U.S. — especially light sweet crude coming out of North Dakota and Texas — has outpaced U.S. pipeline capability. So oil refiners and producers are turning increasingly to other transportation networks to move crude: barges, trucks and, in particular, railways.

The use of rail cars to ship crude is growing enormously, jumping from 9,500 carloads in 2008 to 234,000 carloads last year, according to the Association of American Railroads. Canadian National Railway says moving crude oil by rail is one of its fastest growing businesses — despite increasing questions about rail safety, especially in the wake of a deadly crash in Quebec last July, when an oil train derailed, killing dozens of people.

Sandy Fielden, an analyst with RBN Energy, says that hasn't slowed down refiners wanting to move oil. It's less expensive to transfer crude by pipelines, but that can be offset by storage costs refiners have to pay if the pipelines are too congested. Fielden says laying rail track or upgrading refineries for trains is not as expensive as building a new pipeline. He says railways also require shorter and less rigid agreements with refiners.

"They only need to commit to about two years' worth, compared to 10 to 15 years on a pipeline — which means there's much less risk," says Fielden.

Refineries, Railways Making Necessary Changes

Michael Murray, a Roman Catholic priest in Elkton, Md., has studied and written about the rail industry for 40 years, and knows some of the best vantage points for spotting trains and studying oil refineries along the East Coast.

On a recent morning, he peers across an open field overlooking the PBF Energy refinery in Delaware City, Del. From here, a mile-long Norfolk Southern train being unloaded is visible.

Murray says the railroad recently reconfigured its tracks outside the refinery, apparently to better maneuver the oil trains. PBF Energy says it installed new oval tracks — which Murray calls "loops" — at the refinery to more efficiently unload the large amounts of oil coming in by rail.

"The loops ... can at present unload 20 to 25 tank cars at a time," he says. "They're able to unload 70,000 barrels of oil in about eight to 10 hours."

Murray says the mile-long oil trains — often called "rolling pipelines" — don't really stop.

"In the 2,000 miles it takes to get from ... North Dakota and Canada to here, the only time they stop is to refuel the locomotives and to change the crew," he says. "They are hot trains ... nothing gets in their way."

Texas-based Valero Energy is one company that's increasingly relying on rail. It signed on to use the Keystone XL pipeline several years ago to ship heavy Canadian crude to its terminals on the Gulf Coast.

But spokesman Bill Day says given the long delay to build pipeline, Valero began buying rail cars and reworking some of its refineries to bring in trains. Day says Valero likes having alternatives.

"We like getting oil from different sources. If we can bring it in by ship and by pipeline and by rail, and even by truck in some instances, that gives us more flexibility," he says. "The more options we have, the better off we are."

Day says given the amount of oil being produced these days, even if construction of the Keystone pipeline went ahead tomorrow, Valero would continue to use rail.

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It's five years since the Keystone XL was first proposed. The 1,700-mile pipeline would carry millions of gallons of crude oil from Alberta, Canada, south to refineries along the U.S. Gulf Coast. But largely in response to environmental concerns, the Obama administration has yet to decide whether to allow the project to go forward. In the meantime, as NPR's Jackie Northam reports, refiners are increasingly turning to rail to move their crude.

(SOUNDBITE OF TRAIN WHISTLE)

JACKIE NORTHAM, BYLINE: A long train whistle pierces the quiet of an autumnal Delaware countryside, moments before a train sweeps around a broad curve. Two heavy locomotives help haul dozens of white cylindrical rail cars loaded with 70,000 barrels of crude oil. The U.S. is awash in oil, due in large part to advances in drilling techniques such as hydraulic fracturing or fracking.

U.S. oil production hit a 24-year high in September. But there's a challenge getting the crude from the field to the refinery. Most oil is moved by pipeline, but the increased production has overtaken U.S. pipeline capability. So, oil refiners and producers are turning to other transportation networks to move heavy crude from the tar sands of northern Canada and a light, sweet crude from North Dakota. In particular, producers have turned to the railway.

MICHAEL MURRAY: We've got a pretty good view of the refinery there.

UNIDENTIFIED MAN: Yup.

MURRAY: Now, there is a train in the loops. There's the two locomotives.

NORTHAM: Father Michael Murray has studied and written about the rail industry for 40 years. He knows some of the best vantage points for spotting trains and studying oil refineries along the East Coast. Today, he's in Delaware City, Delaware, near the PBF Energy refinery. From his vantage point on a public road, Murray peers across an open field next to the refinery.

MURRAY: And you see the tank cars with the lids open. They're being unloaded.

NORTHAM: The silver-haired priest, sporting jeans and a maroon golf vest bearing a Norfolk Southern logo, listens to the railways on his walkie-talkie to find out what trains are going where and what they're carrying.

UNIDENTIFIED MAN #2: Engine number 8510.

NORTHAM: Murray watch for months as Norfolk Southern Railway reconfigured its tracks outside the PBF Energy refinery, apparently to better maneuver the oil trains. PBF says it installed new oval tracks at the refinery to more efficiently unload the large amounts of oil coming in by rail. Murray says the mile-long oil trains are often called rolling pipelines.

MURRAY: These trains don't stop. In the 2,000 miles it takes to get from North Dakota and Canada to here, the only time they stop is to refuel the locomotives and to change the crew. They are a hot train.

NORTHAM: Meaning?

MURRAY: Priority. Nothing gets in their way.

NORTHAM: The use of rail cars to ship crude is growing enormously, jumping from 9,500 carloads in 2008 to 234,000 carloads last year, according to the Association of American Railroads. That, despite increasing questions about rail safety, especially in the wake of a deadly crash in Quebec last July, when an oil train derailed, killing dozens of people.

Sandy Fielden, an analyst with RBN Energy, says that hasn't slowed down refiners wanting to move oil. Pipelines are less expensive to transfer crude, but that can be offset by refiners having to pay storage costs if the pipelines are too congested. Fielden says laying rail track or upgrading refineries for trains is not as expensive as building a new pipeline. He says railways also require shorter and less rigid agreements with refiners.

SANDY FIELDEN: They only need to commit to about two years worth instead of 10 to 15 years on a pipeline, which means they're taking much less risk.

NORTHAM: Texas-based Valero Energy signed on to use the Keystone XL pipeline several years ago to ship heavy Canadian crude to its terminals on the Gulf Coast. But spokesman Bill Day says given the long delay to build that pipeline, Valero began buying rail cars and reworking some of its refineries to bring in trains. Day says Valero likes having alternatives.

BILL DAY: We like getting the oil from different sources. If we can bring it in by ship and by pipeline and by rail and even by truck, in some instances, that gives us more flexibility. The more options we have, the better off we are.

NORTHAM: Day says given the amount of oil being produced nowadays, even if the construction of the Keystone pipeline went ahead tomorrow, Valero would continue to use rail. Jackie Northam, NPR News, Washington. Transcript provided by NPR, Copyright NPR.