CHICAGO While there are
plenty of crude oil pipeline projects on the books, the
permitting environment is a difficult one, keeping many of
those projects from moving forward, according to a refinery
Railroads, with much of their
infrastructure already in place and their ability to quickly
expand, have stepped into the breach to become major
transporters of crude oil (amm.com, May 13 and April
29). But they have their limits, C. Michael Palmer, senior vice
president of supply, distribution and planning at Findlay,
Ohio-based Marathon Petroleum Corp., said.
influence and such disasters as BP Plcs Deepwater
Horizon rig explosion and oil spill in April 2010 have
slowed permitting for new pipelines, which means "pipelines
have become expensive, costing billions to build," Palmer said
last week during the joint annual meeting of the American Iron
and Steel Institute (AISI) and Metals Service Center Institute
(MSCI) in Colorado Springs, Colo. "Companies are trying to
limit risk. Rail has stepped in to fill the gap."
At the Bakken Shale in North
Dakota, "about 160,000 barrels of crude oil are moved by
pipeline each day, while 625,000 barrels move by rail," he
said. "We do expect rail volume to peak at 800,000 barrels per
day as pipelines (from Bakken) get built."
Eventually, "we expect (Calgary,
Alberta-based pipeline operator) Enbridge (Inc.) will build a
system; (TransCanada Corp.) will get the Keystone XL built, and
(there will be) another project to get Bakken crude out," he
When all of that develops, "rail
cannot compete with pipe. Most of the people in the business
say that if you are investing in rail, you had better get your
money out in a few years because its not going to be able
to compete once the pipelines are built," Palmer said. "In
order to rail crude from North Dakota to Philadelphia, it costs
$16 to $17 per barrel. Even when the new pipeline that we need
gets built, it will be no more than $8 per barrel."
The hope among oil producers and
refiners is that President Obama will approve
TransCanadas proposed XL pipeline by year-end or in early
2014, he said.
"Rail is an expensive way to
move crude, but the Bakken producers didnt have a choice.
They needed a way to move (oil) quickly or they didnt
produce," Palmer said. "That solution was rail."
Editor's note: An earlier
version of this story misstated the estimated costs of shipping
crude oil by rail and pipeline.