10 Jun 16, 17:56 - Biofuels, Crude oil, Freight, Fundamentals
Houston, 10 June (Argus) — Railed US shipments of crude fell by over 30pc for the first three months of 2016 compared with the 2013-2015 average as ethanol and biodiesel shipments held steady, according to Energy Information Administration (EIA) data.
Between 2013-2015 crude-by-rail shipments averaged 23.8mn bl/month compared with 16.3mn bl/month in the first quarter of 2016. Biodiesel shipments averaged just under 630,000 bl/month in the three-year period compared with 640,000 bl/month in the first quarter of this year. Ethanol shipments increased from 17.7mn bl/month between 2013 and 2015 with 17.9 bl/month in 2016's first quarter.
Crude-by-rail transportation became viable this decade when domestic oil production outgrew pipeline capacity. In 2014 more than 1mn b/d travelled by rail, making it the busiest year to date for railways transporting crude.
The majority of US crude, ethanol and biofuel moving by rail originates in the midcontinent, which is home to most of the Bakken's oil production and its corn-producing region. The east coast has been the primary recipient of rail shipments.
As Bakken and Brent prices converged around 2015, importing crude to the east coast became more cost-effective for refiners. Brent crude held an average premium of $5.25/bl during 2015, making the delivered cost of Bakken uneconomic for east coast refiners and leading to a significant decline in traffic. Rail rates from the Bakken to Philadelphia averaged $10.85/bl for unit train service throughout 2015.
New pipeline infrastructure also contributed to crude by rail's decline, such as Kinder Morgan's 84,000 b/d Double H pipeline that moves crude from the Bakken to Wyoming. Declining production also has reduced reliance on rail.
Production in North Dakota, home to most of Bakken's production, was 1.1mn b/d in March, down from a peak of 1.2mn b/d last summer. Estimated railed volumes out of the state in March were about 400,000 b/d compared with a peak of more than 800,000 b/d last summer.
The confluence of new pipelines and competitive imports led to crude-by-rail's 2016 decline. Between 2015 and 2016 railcars carrying crude, natural gas or petroleum declined at all of the Class I railroads. Western railroads BNSF and Union Pacific saw declines of 42pc and 32pc respectively, while eastern carriers Norfolk Southern and CSX coped with volume declines of 37pc and 40pc each.
Kansas City Southern Railway's volumes held up better than its counterparts, dipping by only 3.9pc from 2015 to 2016 because of its heavier reliance on crude shipped from Canada to Gulf coast refineries. The majority of the other US carriers move mostly light, sweet crude.
While railroads battle imports and pipelines, the trucking industry is looking to driverless trucks to grab market share. Earlier this year FTR consultant Larry Gross told the North American Rail Shippers Association that he is a "firm believer that this phenomenon [driverless trucking] is going to happen sooner than we might think."
Swedish Automaker Volvo predicts to have an autonomous truck on the market by 2020, and has been testing "platooning" technology that would allow multiple trucks to travel with greater fuel efficiency by decreasing air drag.