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Pipelines Filled With Oil Amid Changing Economics and Rail Rules

Shipments of crude from the Bakken are shifting back to pipelines from trains as more regulations and narrower price spreads make rail less desirable.

Rail loadings in North Dakota last week fell by an average of 103,000 barrels a day to 471,000, the lowest level since September, according to Genscape Inc. Loadings declined the day after the U.S. Transportation Department issued new rules on Feb. 25 requiring producers to test the chemical composition of all crude intended for shipment by rail.

“We’re seeing a shift back to pipe,” Steve Wuori, strategic adviser to Enbridge Inc. Chief Executive Officer Al Monaco, said yesterday in an interview at IHS CERAWeek in Houston. “That’s been coincidental with more production coming on, but it’s also been coincidental with some of the concerns about rail” and changing economics.

Enbridge’s North Dakota pipeline system is operating at full capacity after volumes bottomed out in April, Wuori said.

The Transportation Department’s order followed a series of derailments and explosions involving trains carrying crude from North Dakota and Montana. The rules also required that heavier crudes previously categorized as less flammable “Group III” products be labeled as riskier “Group I” or “Group II,” which require higher standards for tank cars.

Pipeline Authority

Enbridge is the largest transporter of Canadian crude to the U.S. with a mainline system that can transport 2.5 million barrels a day of oil to the U.S. Midwest from Alberta. The North Dakota System, which runs from Montana through North Dakota to Clearbrook, Minnesota, can handle 475,000 barrels a day, according to the company’s website.

The Calgary, Alberta-based company has also entered the crude-by-rail business, operating an 80,000-barrel-a-day loading station in Berthold, North Dakota. It is about to open an 80,000-barrel-a-day unloading terminal in Eddystone, Pennsylvania, where it will have access to the Delaware River.

Rail shipments out of North Dakota peaked in April, when 75 percent of the state’s oil was shipped by train, according to the state Pipeline Authority. As the discount between U.S. and global crude prices narrowed from more than $20 a barrel in March to 20 cents in June, rail shipments fell, bottoming out at 61 percent in July.

Shipments climbed back to 73 percent in December, the most recent month for which data is available, as the U.S. crude discount averaged $12.82 a barrel that month. The discount was $5.97 yesterday based on settlement prices.

Pipelines are far better than rail for moving oil long distances, Russ Girling, chief executive officer of TransCanada Corp., said yesterday in an interview at CERAWeek.

“Even if we started moving 2 million barrels a day by rail car, if you approved these pipelines that would shift to moving it by pipeline,” Girling said. “It’s half the price or less, has no GHG emissions, it’s buried 5 feet below the ground.”

To contact the reporters on this story: Dan Murtaugh in Houston at dmurtaugh@bloomberg.net; Rebecca Penty in Calgary at rpenty@bloomberg.net; Alex Nussbaum in New York at anussbaum1@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

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