Among the biggest beneficiaries of the demand for transport of crude oil out of North Dakota’s Bakken shale region are the owners of the two main rail links to the region, Canadian Pacific Railway and Burlington Northern Santa Fe, which is owned by Warren Buffett’s Berkshire Hathaway.MP: The chart above shows annual rail car shipments of oil for the years 2007 to 2011 according to rail traffic reports from the American Association of Railroads, and an estimate for 2012 shipments based on data through Week 34 of this year. The number of carloads transporting oil this year will likely be at least 35% ahead of last year. Rail shipments of oil year to date this year are 41% ahead of last year, and shipments for Week 34 (the week ending August 25) were 56% above the same week last year.
The companies are exploiting the lack of pipeline capacity needed to ship the region’s rapidly growing production of crude to refineries thousands of miles away, and that demand is serving to more than offset expected weakness from their shipment of agricultural products due to the drought and lower coal shipments as utilities shift to burning the cheaper natural gas.Oil production from the 200,000-square-mile Bakken basin, which extends into Montana and southern Canada, is skyrocketing, thanks in part to the use of hydraulic fracturing, or hydro-fracking, a process where a mixture of water, sand and chemicals is blasted deep underground to release oil and natural gas trapped within shale rock.My recent visit to the Bakken underscored the importance of rail traffic to the region, as this projected long-term boom, still in its infancy, is in dire need of infrastructure to support it.
That means material for the build-out of roads, housing, pipelines, and oil-storage facilities has to be shipped in, in addition to the pipes, machinery, chemicals and sand used in the hydro-fracking drilling process creating high demand for inbound rail traffic, while oil is being shipped out over the same rail network.
This is another example of how shale prosperity is spreading down the supply chain for the many industries that support oil and gas drilling, including railroads, fracking sand, drilling equipment, housing, construction, etc.
Is Warren Buffet a crony?
ReplyDeleteBuffet was opposed to the Keystone pipeline.
ReplyDeleteOne would have to be cynical to suggest that it was because of his interests in Northern Burlington.
but you don't need the keystone pipeline to move Bakken Oil, right?
ReplyDeleteso what's the deal? As far as I know, ONLY the Keystone Pipeline has been held up not others.
so what's the pipeline story?
do they expect the Bakken oil to not last very long and they'd end up with abandoned pipelines or what?
reading through all the links...
ReplyDeletemy understanding of the Keystone is that it will ship liquids are are incompatible with normal crude and that the capacity of the line is designed with respect to the Canadian oil.
but this still does not explain why other pipelines -domestic pipelines that don't have the permit issues that the Keystone has - cannot be built -and built faster than the Keystone can even if it could be used for Bakken oil.
the sound-bite story is that the oil is shipped by rail because the Keystone is held up.
the real story is different. There are other pipeline options beside Keystone.
why do we portray this as a keystone vs rail issue in the first place?
Larry: If you click through to the full article, you will find answers to your questions.
ReplyDeletehere's a couple of maps showing US pipelines:
ReplyDelete"Oil Pipelines Criss-Cross the United States: Why the Fuss Over Keystone XL?"
http://oilprice.com/Energy/Energy-General/Oil-Pipelines-Criss-Cross-The-United-States-Why-The-Fuss-Over-Keystone-XL.html
ReplyDeletebut this still does not explain why other pipelines -domestic pipelines that don't have the permit issues that the Keystone has - cannot be built -and built faster than the Keystone can even if it could be used for Bakken oil.
First, some pipeline capacity has already been built but could not keep up with production increases. But there is another issue that the pipeline utilities are worried about. That is the ability to depreciate their investment over the 25 year useful life of the pipeline. Many companies are not sure that the shale formations will continue to produce as much oil as they are now because their planners can see the depletion rates and cash flows. I intend to have a chat with one of the analysts about this later on this month and during my usual PDAC visit next March where some excellent people tend to share their thoughts with those willing to listen.
re: pipeline depreciation and the projected lifespan of Bakken
ReplyDeletethat seems to be a legitimate issue.
more legitimate than the Keystone narrative.
"re: pipeline depreciation and the projected lifespan of Bakken
ReplyDeletethat seems to be a legitimate issue.
more legitimate than the Keystone narrative."
VangelV and Larry, will you please provide a source for your concern of a depreciated projected lifespan of a Bakken oil pipeline?
hanke-
ReplyDeleteyes. buffet has become a massive rent seeker. not only is he using political connections to drive business, but his whole "i should pay more taxes" shtick was a rent seeking effort to benefit his life insurance business.
life insurance is now used predominantly as a wealth management tool to cover estate taxes. the yields on it are very high at the moment. higher than is good for BH. if warren can get cap gains taxes ramped up, it makes life insurance comparatively more attractive for wealth management drive more buying and yields down.
far from being a good natured populist, he's talking his own book and trying to screw investors for the benefit of berkshire hathaway.
one would think that domestic pipeline companies like OneOK would be in this mix, no?
ReplyDeleteyup.
http://www.huffingtonpost.com/2012/04/10/bakken-crude-express-pipeline_n_1413525.html
more:
" Oneok's plan brings to six the number of pipeline projects proposed to help ship crude out of the rich Bakken shale and Three Forks-Sanish oil reservoirs in the western North Dakota, said Justin Kringstad, director of the North Dakota Pipeline Authority.
Which projects becomes a reality will depend on which get commitments from suppliers. Oneok spokesman Brad Borror said his company is negotiating commitments that could put it on track to begin construction next year and complete a pipeline by 2015.
Kringstad called Oneok's proposal "very substantial" but said the market will determine if any of the proposed pipelines are built."
gee... not Obama? Keerist! the market will decide not Obama?
Jesus H. Keeerist!
Paul - did you read the link I provided?
ReplyDeletehad you actually read it - you might know more than you appear to.
read the link guy.
ReplyDeleteCheck out Larry struggling mightily with his limited cranial capacity to vindicate his hero Obama and his radical war on fossil fuels.
"gee... not Obama? Keerist! the market will decide not Obama?"
Larry the Liberal, what do you not understand about national borders? Last I checked, N Dakota was part of the continental United States.
From your article: "It also is the only one that needs federal approval because it is the only one that would cross the U.S.-Canada border, Kringstad said."
Read it yourself, Larry.
ReplyDeletePaul - all the other pipelines do NOT need the approvals that Keystone needs.
ReplyDeleteright?
if all these other pipelines can move Bakken oil.. then what is the problem?
why is Keystone the problem?
are you so biased against Obama that you refuse to accept the fact that other pipelines exist?
Pipeline capacity is the problem. Keystone was a master plan with a spur connecting the Bakken fields. Obviously the delay from the govt held up the master plan. They are now building the spur lines but it takes time.
ReplyDeletehttp://www.transcanada.com/bakken.html
re: keystone spur
ReplyDeletebut what keeps other domestic pipelines from also adding capacity?
it's not a situation where ONLY the keystone can carry Bakken crude.
there are dozens, hundreds of other pipelines already occupying existing rights-of-way that can add capacity, right?
Many pipeline right-of-ways lie parallel to railroads. I wonder if they are cooperative?
ReplyDeleteLooking at your map link, find a pipeline going to Cushing, OK or the Gulf. The problem is this area simply does not have a history of high oil production and lacks nearby infrastructure.
you mean Buffet could get a crony pipeline perk?
ReplyDelete:-)
2012 SEC filings reveal that BNSF is booming in part due to Bakken Oil. But that's only half the story. Increased intermodal shipments of consumer products have accounted for an equal increase in BNSF revenues since 2010. At the same time, coal shipments were down slightly:
ReplyDelete"Coal unit volumes decreased primarily due to a decrease in coal demand as a result of low natural gas prices, a mild winter and spring and rising utility stockpiles"
Of course, coal shipments will drop because Obama's EPA is forcing utilities to switch to gas.
Larry G: Keystone was designed for two purposes:
ReplyDelete1. reduce the bottleneck at Cushing, OK. The bottleneck is one of the major reasons that WTI is about $15/bbl cheaper than North Sea crude. Now, the southern leg of that is proceeding, with Obama's blessing. A cynic would suggest that its because he has no say in internal US pipelines.
2. Bring Canadian heavy oil south, which also suffers in price from the Cushing bottleneck. As well, within a few years, all pipeline capacity going south will be filled.
VangelV and Larry, will you please provide a source for your concern of a depreciated projected lifespan of a Bakken oil pipeline?
ReplyDeleteAll of the pipeline companies assume a certain lifetime. When planning they use a depreciation schedule that reflects that planning internally while the accountants make certain modifications due to tax factors. If you build a pipeline and 10 years down the road there isn't enough oil going through it you have to use a higher cost and project lower revenues. That has a huge impact on profitability.
At one of the natural resource conferences I attended there was a debate about what to do with the Alaskan pipeline capacity if a new line is to be built because of concerns about the depletion rates taking oil production below certain levels and the effect that would have on overall economics. I suggest that you find a competent petroleum engineer who understands the topic or look at some of the literature that deals with the subject. I have seen some papers on the topic so there must be something available if you are really interested in the topic.
This may be an old topic but it is interesting how the title of the article might have people thinking there is a huge benefit here to the rail industry in general. Title = "Railroads Are on a Fast Track, Thanks to Bakken Oil". It is dutifully noted that the author does point out the two rail companies (and some others) that are benefiting.
ReplyDeleteHowever, the “rest of the story” is that even with this increase to rail traffic for oil, rail traffic in total is still down year over year. The source charts referred to (now week 35) indicate a 2.4% drop in rail traffic. (Refer to: http://www.aar.org/NewsAndEvents/Freight-Rail-Traffic/2012/09/~/media/aar/weekly_traffic_reports/2012/2012-09-06-railtraffic.ashx)
Indeed, petroleum product traffic is up 40+% (97,935 carloads originated), however coal traffic is down 9.3% (414,971 carloads originated). So, while we might celebrate the increase for a few, just think if we had the coal traffic as well and the jobs generated by that activity along with the less expensive electricity.