A crude romance reblossoms on rails

February 7, 2011

John D. Rockefeller and partner Henry Flagler made quite a fortune during the 19th century transporting crude oil by rail from Pennsylvania to Cleveland for refining, and then shipping the refined product via rail to consuming markets.

Flagler later used his portion of the fortune to build Florida East Coast Railway.

Then came pipelines, a less expensive means of crude and refined oil transportation. Except for the Alaska Railroad — which, since 1977, has hauled jet fuel from a North Pole refinery south to the Anchorage airport — crude and refined oil moves mostly by pipeline.

Railroads now are returning to the oil transport business, creating increased train and engine worker jobs.

Because of differences in the price paid for crude oil at refineries, oil brokers are realizing a profit by moving Canadian and North Dakota crude oil to Southwest refineries not fully served by pipelines. “Flexible rail routes could allow oil cargoes to move to destinations where oil fetches a premium,” reports Reuters.

“Shippers who can move barrels from North Dakota to Louisiana by rail — a journey that costs as little as $7 a barrel — stand to capture a big arbitrage premium,” says Reuters.

EOG Resources, for example, is shipping a unit-train daily of crude oil via BNSF from North Dakota to Stroud, Okla. Other oil-by-rail movements are planned from the state, and CN is investigating moving Canadian crude south to Gulf Coast refineries not directly served by pipelines.