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Rail vs. pipelines: how to move oil

Tank cars heading to North Dakota to fill up with oil. Photo by roy.luck via Flickr,

A growing shift in the way North America ships oil

2 May 2014

The North American surge in oil production has taxed infrastructure from rig services to hotel rooms, but changes to few sectors have drawn more attention than what has happened to the rail system.

In just the United States, rail carried nearly twice as many car loads of crude oil from production sites last year than in 2012, and more than 40 times as many as in 2008. The 400 000 car loads last year transported 770 000 barrels per day on average, according to the Association of American Railroads.

North American rail shipments of oil are by no means unprecedented, but until the recent surge in production, they were largely limited to stopgap, temporary use, with pipeline construction favoured. While not more than 10% of all US crude output moves by rail at present, production from the Bakken and Niobrara formations as well as other midcontinent crudes heavily dependent on rail is expected to continue growing. Existing pipelines in the region are running at capacity, and so up to 70% of North Dakota oil, for example, now reaches refineries by train.

Recent spills upset long track record

Not surprisingly, accidents have increased as well, with the US Pipeline and Hazardous Materials Safety Administration reporting that the 4.35 million litres of crude spilled in 2013 by US railroads exceeded the total since the government agency began keeping count. As that does not include Canadian spills, it excludes the July explosion in Lac-Mégantic, Quebec, that besides killing 47 people spilled more than 5.6 million litres of North Dakota crude.

The spills since the production surge altered a long safety record in which pipelines spilled three times as much oil as rail from 2004 to 2012, according to IEA Oil Market Report analysis of US Transportation Department data. Since the US pipeline agency started tracking spills in 1975, there were no rail spills in eight years and in five years no spill exceeding 3.8 litres.

However, pipelines carried far more oil then; less than 0.3% of total US tonnes-miles moved by rail for more than half of the period, while pipelines transported more than three-quarters. But while a spill by rail was six times more frequent than for a pipeline during that period, the average pipeline spill was far graver. Also, the department records any rail spillage, regardless of size, while a pipeline must release at least 19 litres for the incident to count; removing small rail spills cuts the incidence ratio from 6:1 to 2:1.

Beyond spills, the issue of dangerous rail-based explosions has raised specific concerns about older-model tanker cars’ resistance in the event of an accident and about certain types of crude oil, or other substances mixed with the crude oil, that could have particularly explosive properties.

Rail’s high costs but also high upside

Rail is a relatively costly way to ship oil, but it has distinct advantages over pipelines where transport infrastructure does not exist or is insufficient. In North America, it is easier to obtain regulatory approval for regional or cross-border rail links than for a pipeline. Other advantages include flexibility and the relative speed of rail infrastructure deployment. “Unit trains”, long freight trains that carry only oil, offer producers economies of scale and substantially lower costs compared with traditional freight trains.

But pipelines do have their advantages. After the initial investment, operating costs are about one-third on average of rail, and pipelines are more energy-efficient and emit less carbon.

This article by Charles Esser, a supply analyst in the IEA Oil Industry and Markets Division, appears in the new issue of IEA Energy: The Journal of the International Energy Agency.  The IEA produces IEA Energy, but analysis and views contained in the journal are those of individual IEA analysts and not necessarily those of the IEA Secretariat or IEA member countries, and are not to be construed as advice on any specific issue or situation. Click here to read the new and earlier issues of IEA Energy, and click here to send a request a free subscription.

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