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Rail gains in crude oil market: Morgan Stanley

Keywords: Tags  Morgan Stanley, Stephen Maresca, Evan Calio, William Greene, rail, crude oil, pipelines, Thorsten Schier

NEW YORK — Morgan Stanley analysts see the trend of "crude by rail" growing in the next two years as domestic oil output ramps up, although they said the trend is unlikely to threaten pipelines in the long term.

"Rail is a flexible solution for producers in that it can offer shorter-term contracts and a different geographic end market. We believe rail will be a bigger part of the takeaway solution medium-term but we see it as a supplement to pipelines, not as a replacement of pipelines," Stephen Maresca, the bank’s master limited partnerships and diversified natural gas companies analyst, said in a video on the company’s website.

In the short term, the increasing use of rail has had some effect on pipeline construction, however, exemplified by the recent cancellation of Oneok Pipeline Partners LP’s plan to build a $1.8-billion pipeline from the Bakken shale (, Nov. 28).

"We saw Oneok unable to get commitments for an oil pipeline project in the Bakken, possibly owing to rail’s advantages," Maresca said.

Morgan Stanley expects domestic light sweet crude oil production to grow by 2 million barrels per day over the next five years, with rail the preferred option for moving the increased output, according to Evan Calio, Morgan Stanley’s lead analyst for the integrated oil and refining industries. "Excess oil production must be moved to the East and West coasts, largely via rail, at least for the next two years, as there are no firm plans to build pipes in those directions, and none currently exist," he said.

Petroleum products accounted for only 2 percent of total railroad traffic last year, but that number is expected to grow, and rail companies could be transporting some 450,000 carloads of crude by 2014, according to William Greene, the bank’s senior transportation analyst. An average rail car holds about 650 barrels of crude.

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