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 operations executive.
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.
Environmental groups 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 said.
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.