PIRA Energy Group, a NYC-based energy markets consulting firm, in partnership with Transportation Economics LLC of Lebanon, Pa., has announced the launch of a new multi-client study entitled “North American Crude by Rail: The Outlook for Capacity, Costs and Constraints,” which will address the implications of the growing need to transport crude oil by rail from producing regions with limited pipeline capacity to refining centers in North America. 

The issue at hand, according to PIRA, is that the rapid growth of crude oil production in parts of North America has resulted in pipeline bottlenecks that prevent the crude from accessing the highest value markets. Crude producers have sought to access these markets by rail and other means. Since wellhead prices are significantly influenced by a netback of the marginal barrel produced, and rail supply chain costs are typically much higher than pipeline costs, in many cases the cost of delivering the crude via rail is a crucial determinant of wellhead crude prices in these landlocked regions relative to crude prices in coastal markets. 

The rapid emergence of this major new crude oil supply chain has led to sizeable new investments in loading facilities and unloading facilities and soaring orders for tank cars, making movement of oil by rail a major growth market for North American railroads. This development will not be news to those who follow the railroad industry closely. However, what will be of great value is a better understanding of the many specific logistical challenges that are raising key questions around the movement of crude from field to refinery, with particular emphasis on whether there will be adequate rail and barge capacity, and if the current tight market for rail cars will loosen.  

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PIRA’s Peter Jaquette, one of the authors of the study, notes, “The supply chain for moving crude oil by rail in North America is complex, involving trucking in the field, storage and loading, railroad line haul, tank car expense, unloading, and potentially barging to the final destination. While the entire supply chain cost is often referred to as the ‘railroad’ transportation cost, the direct railroad line haul portion may be less than 40 percent of the total cost. Each of the cost components has individual market dynamics.” 

PIRA projects that over the next five years, some of the supply chain links will see cost increases of almost 30 percent, while others will see cost reductions of more than 10 percent. “This is why we are doing the study: to provide a deeper understanding of each of the cost components of moving crude oil by rail,” says Jaquette. 

The study will be available in early April and will include a written report, an online briefing via WebEx and a rail supply chain cost model. For more information on the study, visit www.pira.com/services/multi-client-studies/north-american-crude-by-rail.

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