NEW YORK The
crude-by-rail phenomenon might be slowing due to narrowing
margins in oil production from some shale plays like the
Bakken, but it is unlikely to disappear anytime soon, according
to analysts at Morgan Stanley Research.
"Investors have become
increasingly concerned about the sustainability of
crude-by-rail volumes, as crude oil differentials (WTI-Brent)
have compressed to their lowest levels in 18 months. Bears
argue that differentials are now too low to justify the
economics of crude-by-rail, and if they remain this low,
shippers will increasingly shift to less expensive alternatives
such as pipelines or foreign crude imports," the analysts wrote
in a June 24 note.
Stanley analysts believe oil volumes transported via rail will
not collapse because long-term agreements between producers and
shippers are lowering rail costs and new oil-producing regions
still lack pipelines.
terms, geographic optionality and a less-diluted product still
give rail key advantages over pipelines, keeping rail a part of
the long-term crude transportation infrastructure, according to
Also, permitting is
not an issue for rail as networks are already in place.
TransCanada Corp.s Keystone XL pipeline has been delayed
for almost three years due to permitting issues, for
Crude transport by rail is still more expensive at about $18
per barrel compared to pipeline costs of about $12 per barrel,
though project costs for pipelines significantly exceed those
of rail, Morgan Stanley analysts added.