Cheap oil, new pipelines end rail transport boom, EIA says

HOUSTON — Declining prices and extra pipeline capacity have shrunk U.S. crude by rail shipments, according to an analysis by the U.S. Energy Information Administration.

The majority of the slowdown has come thanks to slowing shipments of oil from Midwest producers to the refineries of the Gulf Coast. Shipments of crude oil to the East Coast and the Pacific region are down slightly, though still above 2012 levels.

Oil producers initially embraced shipments of oil via rail when surging U.S. shale production outgrew infrastructure for getting oil to market. While shipping via tank car is more expensive than paying pipeline tariffs, rail shipments can come online faster and offer flexible destinations.

graph of crude by rail receipts from the Midwest, as explained in the article text

Rail shipments peaked at 928,000 barrels per day in October 2014, the EIA said. Most of the oil flowed from the Midwest to the refineries on the coasts, as crude oil buyers looked to cash in on the U.S. oil that was selling for less than oil from overseas. Since then, the incentive to move oil has slipped as the difference between global and U.S. oil prices has narrowed, the EIA said.

“Because domestic crudes such as West Texas Intermediate (WTI) and Bakken, which are priced at Oklahoma and North Dakota, respectively, are no longer priced significantly less than waterborne crudes such as North Sea Brent, there is less of a cost advantage for costal refineries to run the domestic crudes,” analysts wrote.

More than half of the oil carried on rails starts in the Midwest and ends up in the East Coast, the EIA said. The figure peaked at 465,000 barrels per day in April 2015, and has declined as refineries have imported more oil. A smaller amount of rail cars head to the West Coast — shipments averaged 139,000 barrels per day of crude oil by rail from the Midwest in 2015, about the same as 2014.

Rail shipments from the Midwest to the Gulf Coast have plummeted from the largest share of the market in 2012 to the smallest in 2015. The shipments started to decline in late 2013 as new pipeline capacity offered producers a cheaper route to the regions refiners. Shipments dropped to 38,000 barrels per day in December 2015, down by 75,000 barrels per day from the previous year.