CHICAGO The oil and rail
sectors are experiencing a modern renaissance, with the two
becoming more closely linked than ever as the U.S. energy
The energy industrys
explosive growth is a "kind of a rail gold rush," Morgan
Stanley analyst Evan Calio said during refiner Phillips
66s recent earnings call. Houston-based Phillips 66 is
among a host of firms, including energy producers and
railroads, that are ordering rail cars to ship petroleum
products all over the country as well as to export markets from
shale plays and oil sands.
Phillips 66 started taking
delivery of its first group of 2,000 railcars this month,
chairman and chief executive officer Greg Garland said.
"We are going to move more
Bakken (crude) east and west," he added.
"Rail is growing very rapidly
(for) every single (energy) company," Bill Klesse, chairman and
chief executive officer of San Antonio-based Valero Energy
Corp., told investors last month. "Part of it is because of the
uncertainty surrounding some of the pipelines and a long lead
time that seems to be developing" to get pipeline projects
"Buying railcars is (a) big part
of our future," Klesse said, adding that lead times for new
railcars are 12 to 18 months.
"Our customers are investing in
crude by rail," Canadian Pacific Railway chief marketing
officer Jane OHagan said during the Calgary,
Alberta-based companys recent earnings call. "Our
70,000-carload annual run rate (for oil shipments) was reached
in January, and we have in our line of sight two to three times
the present volume."
"Volume is going to grow as the
market and refinery demand for different crudes evolve and as
the spreads move," she said. "The beauty of this product is
thatas we work with producers, marketers and
transloaders(we) basically make these markets."
With rail demand on the rise,
tank car producers "have stepped up," she said. "Those that are
interested in the crude-by-rail markets are certainly getting
that demand in place," she said (see related story,
Pipelines will eventually be
built, OHagan acknowledged, but even when they start
pumping, rail will remain a viable alternative, particularly as
producers and refiners invest in plants and equipment at
railroad origin and destination sites.
Petroleum products as a portion
of Fort Worth, Texas-headquartered BNSF Railways volume
rose to 4 percent in 2012 from 1 percent in 2006, chairman and
chief executive officer Matthew K. Rose told the Midwest
Association of Rail Shippers in a keynote address last
Given rising demand and lease
rates, "You tank car leasing guys should be buying lunch,
dinner, drinks and all of the hotel rooms (for attendees)," he
And opportunities will likely continue to grow with the
"explosion of drilling" in the shale regions. Although
pipelines are planned for Colorado, Texas and Mississippi,
"rail has a shorter build-up time," he said. In fact, at key
sites, he noted, rail is actually handling as much petroleum as
the pipelines are.