CHICAGO When it comes to
new shale oil plays, rail is increasingly moving in on
territory long dominated by pipelines.
While most industry observers
say that pipelines are in no danger of losing market share to
rail over the long term, some question whether economic or
political factors have caused the current lull in pipeline
"North Dakota is the poster
child of (rail being used to move oil)," said Kurt Minnich,
editor of Pipe Logix, published by Spears & Associates
Inc., Tulsa, Okla. "The gas products need to go in a pipeline
or be flared. And thats what you see in some of North
Dakota. They just flare it so they can ship out the oil."
Natural gas is often found in
conjunction with oil and so it must be flaredburned
offif it is not going to be brought to market.
Rail and pipelines are almost
always competitors when it comes to moving liquids, Minnich
said. But they serve slightly different markets, with rail
often moving product first before pipeline infrastructure can
For an energy company in a hurry
to pay off the cost of bringing a well into production, rail
offers a fast way to move oil to market, Minnich said.
"Pipelines are warranted to more
safely and efficiently move resources out of North Dakota," he
said. "The bottom line is, I think (pipelines) are just a
matter of time. Im just not sure how much time."
The question of time is no small
matter for the energy-transmission sector, especially with
billions of dollars at stake.
Tulsa-based Oneok Partners
LPs proposed $1.8-billion, 1,300-mile pipeline, dubbed
the Bakken Crude Express, was expected to serve the Williston
Basin of the Bakken shale, a burgeoning oil play largely
centered in North Dakota. The line also was positioned to serve
the Niobrara shale, which underlies parts of Colorado, Kansas,
Nebraska and Wyoming (
amm.com, April 10).
The energy transmission storage
and processing firm expected to begin construction of the
pipeline in late 2013 or early 2014, but before the year had
ended the company announced that it had cancelled the project,
citing a lack of interest from potential customers (
amm.com, Nov. 28).
Some market sources question
whether the company scuttled the project purely on economic
grounds, or whether politics might have played a role as well,
given the controversy surrounding Calgary, Alberta-based
TransCanada Corp.s plans to build a massive,
multi-billion-dollar pipeline, the Keystone XL, to move crude
oil from Alberta to the Gulf Coast. The project, which requires
a special presidential permit because it crosses an
international border, was officially put on hold because of
concerns about environmentally sensitive wetlands in Nebraska
amm.com, May 4).
Echoing other industry sources,
Paul Vivian, principal of St. Louis-based steel tube and pipe
research firm Preston Publishing Co., said the manner in which
the issue was handled threw a cloud of uncertainty over the
pipeline permitting and construction process. He contended that
the Keystone XL and other pipelines are economically viable.
"The XL is a profitable entity, and the XL is all political,"
Vivian said. "This is not the first time we have put a pipeline
in the ground."
Pipelines face potential speed
bumps not only at the federal level but also in every state
through which they might pass, Vivian said. That uncertainty
makes financing more difficult to obtain, or at least to lock
down under favorable terms, he said.
Vivian said he thinks more might
have been in play in Oneoks decision to drop the Bakken
Crude Express project besides a lack of shipper interest.
"There wasnt enough shipper interest? Thats just
the most politically correct answer they could give to the
withdrawal. ... Theyve seen (what happened) with the
Keystone XL," he said.
Meanwhile, rail lines into the
Bakken shale region are experiencing bottlenecks, with
companies often forced to truck supplies for wells because
tracks are clogged by crude coming out, Minnich said.
One distributor said he
didnt have the time to waste talking pipeline policy.
"Leave politics out of business," he said. "If we say our
business is doing well or not because of the government, then
our business is starting to fail. Economically, you do what you
have to do to generate revenue ... whether its truck,
rail or pipeline."
The Bakken shale is still a relatively new and developing
play in inhospitable terrain, the distributor said. "Its
not west Texas. The pipelines are not in place. But they will
be. ... And if there is enough return on investment, it can