North Dakota oil rail shipments expected to spike

By James MacPherson
Associated Press

BISMARCK, N.D. (AP) — The percentage of North Dakota oil shipped by rail will likely jump significantly in the next year as producers increasingly turn to trains to reach U.S. refineries where premium prices are fetched, the state’s top oil regulator told lawmakers Thursday.

Lynn Helms, director of the Department of Mineral Resources, told the Legislature’s Government Finance Committee that he expects as much as 90 percent of the state’s crude will move by rail in 2014, up from about 60 percent at present.

North Dakota, the nation’s No. 2 oil producer behind Texas, is on pace to surpass 1 million barrels daily early in 2014, Helms has said.

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North Dakota oil prices have been slipping since July, from about $96 a barrel to an average this month of $73.50. The benchmark price for light sweet crude is set in Cushing, Okla. Oil from North Dakota and Texas is “flooding” that major crude hub where most U.S. shipments are sent, Helms said.

Crude shipped by rail to East, West and Gulf Coast refineries can fetch up to $30 more per barrel than the benchmark set at Cushing, Helms said.

It costs about $6 per barrel to ship by pipeline and about $12 per barrel by rail, and even with the higher shipping, producers are able to net about $24 more per barrel by sending it on trains, he said.

North Dakota oil began being shipped by trains in 2008, when the state reached its then-capacity for pipeline shipments of 189,000 barrels per day, said Justin Kringstad, director of the North Dakota Pipeline Authority.

Trains accounted for only 50 percent of North Dakota’s oil shipments a year ago. More than $2 billion has been spent on infrastructure and nearly two dozen railed-oil loading facilities in recent years.

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Kringstad said he also believes more crude will move by rail than pipelines, at least during times of slumping oil prices.

“I suspect they’re going to move more by rail if the price differential remains as it is,” he said.

Helms said despite falling oil prices, North Dakota is still running ahead of revenue projections, in part due to the higher prices paid by refineries for oil brought by train.

“Rail has really saved our bacon,” he said.